Economics of Imigration

Journal of Economic Literature
Vol. XXXII
1994), pp. 16671717
Journal
of (December
Economic Literature,
Vol. XXXII
Borjas:
(December
The Economics
1994) of Immigration
The Economics of Immigration

By G EORGE J. BORJAS
University of California at San Diego
and National Bureau of Economic Research
I am grateful to Julian Betts, Daniel Hamermesh, James Rauch,

and Stephen Trejo for useful comments, and to the National Science Foundation for research support.
ployment opportunities of natives? Finally, which immigration policy most

benefits the host country?
HERE HAS BEEN a resurgence of imThe policy significance of these quesmigration in the United States and in
tions is evident. For example, immimany other countries. The United Nagrants who have high levels of productivtions estimates that over 60 million peoity and who adapt rapidly to conditions
ple, or 1.2 percent of the worlds
in the host countrys labor market can
population, now reside in a country
make a significant contribution to ecowhere they were not born (United Nanomic growth. Natives need not be contions 1989, p. 61). Although most immicerned about the possibility that these
grants choose a traditional destination
immigrants will increase expenditures on
(over half typically go to the United
social assistance programs. Conversely, if
States, Canada, or Australia), many other
immigrants lack the skills that employers
countries are receiving relatively large
demand and find it difficult to adapt, imimmigrant flows. Nearly 11 percent of
migration may significantly increase the
the population in France, 17 percent in
costs associated with income mainteSwitzerland, and 9 percent in the United
nance programs as well as exacerbate the
Kingdom is foreign-born. Even Japan,
ethnic wage differentials already in existwhich is thought of as being very homoence in the host country.
geneous and geographically immune to
Similarly, the debate over immigration
immigrants, now reports major problems
policy has long been fueled by the widewith illegal immigration.
spread perception that immigrant
As a result of these changes in the imhordes have an adverse effect on the
migration market, the impact of immiemployment opportunities of natives.
gration on the host economy is now beWhich native workers are most adversely
ing debated heatedly in many countries.
affected by immigration, and how large
The political discussion is centered
is the decline in the native wage?
around three substantive questions.
Finally, there is great diversity in imFirst, how do immigrants perform in the
migration policies across countries. Some
host countrys economy? Second, what
countries, such as the United States,
impact do immigrants have on the em1667
1. Introduction
1668
Journal of Economic Literature, Vol. XXXII (December 1994)

TABLE 1
LEGAL IMMIGRANT FLOW TO THE UNITED STATES 18811990
Decade
Immigrant Flow
(in 1000s)
Immigrant Flow as
Percentage of Change
in Population
Percentage of Population
that is Foreign-Born at
End of Decade
18811890
18911900
19011910
19111920
19211930
19311940
19411950
19511960
19611970
19711980
19811990
5,246.6
3,687.6
8,795.4
5,735.8
4,107.2
528.4
1,035.0
2,515.5
3,321.7
4,493.3
7,338.1
41.0
28.3
53.9
40.8
24.6
5.9
5.3
8.7
13.7
20.7
33.1
14.7
13.6
14.6
13.2
11.6
8.8
6.9
5.4
4.7
6.2
7.9
Sources: U.S. Department of Justice. Immigration and Naturalization Service (1993, p. 25); U.S. Department of
Commerce. Bureau of the Census (1975, pp. 8, 14; 1993b, p. 50).
award entry visas mainly to applicants

who have relatives already residing in
the country. Other countries, such as
Australia and Canada, award visas to persons who have a desirable set of socioeconomic characteristics, and still other
countries, such as Germany, encouraged
the migration of temporary guest workers in the 1960s, only to find that the
temporary migrants became a permanent
part of the German population. The
choice of the right immigration policy
can obviously have a significant impact
on economic activity both in the short
run and in the long run.
The past decade witnessed an explosion in research on many aspects of the
economics of immigration. This literature is motivated mainly by the various
policy concerns and provides valuable insights into all these issues. This paper
does not attempt to provide an encyclopedic summary of the empirical results
in the literature; instead, it surveys the
themes and lessons suggested by the ongoing research. Perhaps the most important theme is that an assessment of the
economic impact of immigration re-
quires an understanding of the factors

that motivate persons in the source
countries to emigrate and of the economic consequences of pursuing particular immigration policies. As a result, the
most important lesson is that the economic impact of immigration will vary by
time and by place, and can be either
beneficial or harmful. Although the discussion focuses on the experience of the
United States (simply because most studies in the literature use data drawn from
the U.S. decennial Censuses), we will
see that much can be learned by comparing the U.S. experience to that of other
host countries.
2. Immigration to the United States: A
Brief History
As Table 1 shows, the size of the immigrant flow has fluctuated dramatically
during the past century. The First Great
Migration occurred between 1881 and
1924, when 25.8 million persons entered
the country. Reacting to the increase in
immigration and to the widespread perception that the new immigrants dif-
Borjas: The Economics of Immigration

fered from the old, Congress closed the
floodgates in the 1920s by enacting the
national-origins quota system. This system restricted the annual flow from
Eastern Hemisphere countries to
150,000 immigrants, and allocated the visas according to the ethnic composition
of the U.S. population in 1920. As a
result, 60 percent of all available visas
were awarded to applicants from two
countries, Germany and the United
Kingdom.
During the 1930s, only .5 million immigrants entered the United States.
Since then, the number of legal immigrants has increased at the rate of about
one million per decade, and is now nearing the historic levels reached in the
early 1900s. By 1993, nearly 800,000 persons were being admitted annually.
There has also been a steady increase in
the number of illegal aliens. Demographic studies conclude that around two
to three million persons were illegally
present in the United States in the late
1980s, and that the net flow of illegal
aliens is on the order of 200,000 to
300,000 persons per year (U.S. General
Accounting Office 1993).
Table 1 also illustrates that the size of
the immigrant flow has increased not
only in absolute terms, but also as a percentage of population growth. In fact,
the contribution of the Second Great Migration to population growth is fast approaching the level reached during the
First Great Migration, when immigration
accounted for 40 to 50 percent of the
change in population. As a result of these
trends, the fraction of the population
that is foreign-born rose from 4.7 to 7.9
percent between 1970 and 1990.
The huge increase in immigration in
recent decades can be attributable partly
to changes in U.S. immigration policy.
Prior to 1965, immigration was guided by
the national-origins quota system. The
1965 Amendments to the Immigration
1669
and Nationality Act (and subsequent revisions) repealed the national origin restrictions, increased the number of available visas, and made family ties to U.S.
residents the key factor that determines
whether an applicant is admitted into the
country. As a consequence of both the
1965 Amendments and of major changes
in economic and political conditions in
the source countries relative to the
United States, the national origin mix of
the immigrant flow changed substantially
in the past few decades. As Table 2
shows, over two-thirds of the legal immigrants admitted during the 1950s originated in Europe or Canada, 25 percent
originated in Western Hemisphere countries other than Canada, and only 6 percent originated in Asia. By the 1980s,
only 13 percent of the immigrants originated in Europe or Canada, 47 percent
in Western Hemisphere countries other
than Canada, and an additional 37 percent originated in Asia.
In recent years, the debate over immigration policy led to the enactment of
two major pieces of legislation. Fueled
by charges that illegal aliens were overrunning the country, Congress enacted
the 1986 Immigration Reform and Control Act (IRCA). This legislation gave
amnesty to three million illegal aliens
and introduced a system of employer
sanctions designed to stem the flow of
additional illegal workers.1 The 1990 Immigration Act permits the entry of an additional 150,000 legal immigrants annually. The legislated increase in the size of
the immigrant flow makes it likely that
the United States will admit a record
number of immigrants during the 1990s.
1 In 1986, the Border Patrol apprehended 1.8
million illegal aliens. Although the number of annual apprehensions declined to about one million
following the enactment of IRCA, they are now
back up to about 1.3 million, or 2.5 apprehensions
per minute (U.S. Department of Justice. Immigration and Naturalization Service 1993, p. 156).
TABLE 2
NATIONAL ORIGIN COMPOSITION OF LEGAL IMMIGRANT FLOW TO UNITED STATES, 19311990
193140
194150
195160
196170
197180
198190
Number of Immigrants (in 1000s)

All Countries
528.4
1035.0
2515.5
3321.7
4493.3
7338.1
Europe
Germany
Greece
Ireland
Italy
Poland
United Kingdom
347.6
114.1
9.1
11.0
68.0
17.0
31.6
621.1
226.6
9.0
19.8
57.7
7.6
139.3
1325.7
477.8
47.6
48.4
185.5
10.0
202.8
1123.5
190.8
86.0
33.0
214.1
53.5
213.8
800.4
74.4
92.4
11.5
129.4
37.2
137.4
761.6
92.0
38.4
32.0
67.3
83.3
159.2
16.6
4.9
0.5
0
1.9
0
0.5
0
37.0
16.7
1.4
0.5
1.6
0.1
4.7
0
153.2
9.7
3.4
25.5
46.3
6.2
19.3
0.3
427.6
34.8
10.3
29.6
40.0
34.5
98.4
4.3
1588.2
124.3
164.1
45.1
49.8
267.6
355.0
172.8
2738.2
346.7
250.8
116.2
47.1
333.7
548.8
280.8
160.0
108.5
22.3
9.6
1.2
0.2
354.8
171.7
60.6
26.3
5.6
0.9
996.9
378.0
299.8
78.9
9.9
4.4
1716.4
413.3
453.9
208.5
93.3
34.5
1982.7
169.9
640.3
264.9
148.1
56.3
3615.2
156.9
1655.8
144.6
252.0
138.4
14.1
29.0
80.8
176.9
41.2
45.2
Asia
China
India
Iran
Japan
Korea
Philippines
Vietnam
America
Canada
Mexico
Cuba
Dominican Republic
Haiti
Africa
1.8
7.4
Oceania
2.5
14.6
65.8
21.6
1.7
2.1
12.9
3.2
6.0
60.0
21.9
.9
1.9
5.6
.7
13.5
52.7
19.0
1.9
1.9
7.4
.4
8.1
33.8
5.7
2.6
1.0
6.4
1.6
6.4
17.8
1.7
2.1
.3
2.9
.8
3.1
10.4
1.3
.5
.4
.9
1.1
2.2
3.1
.9
.1
.0
.4
.0
.1
.0
3.6
1.6
.1
.0
.2
.0
.5
.0
6.1
.4
.1
1.0
1.8
.2
.8
.0
12.9
1.0
.3
.9
1.2
1.0
3.0
.1
35.3
2.8
3.7
1.0
1.1
6.0
7.9
3.8
37.3
4.7
3.4
1.6
.6
4.5
7.5
3.8
30.3
20.5
4.2
1.8
.2
.0
34.3
16.6
5.9
2.5
.5
.1
39.6
15.0
11.9
3.1
.4
.2
51.7
12.4
13.7
6.3
2.8
1.0
44.1
3.8
14.3
5.9
3.3
1.3
49.3
2.1
22.6
2.0
3.4
1.9
Africa
.3
.7
.6
.9
1.8
2.4
Oceania
.5
1.4
.5
.8
.9
.6
Europe
Germany
Greece
Ireland
Italy
Poland
United Kingdom
Asia
China
India
Iran
Japan
Korea
Philippines
Vietnam
America
Canada
Mexico
Cuba
Dominican Republic
Haiti
13.0
25.1
Percentage Distribution
Source: U.S. Department of Justice. Immigration and Naturalization Service (1993, pp. 2728).

3. How Do Immigrants Perform in the
Host Country?
Many studies in the modern economic
literature on immigration focus on determining the trends in the skill level and
earnings of the immigrant population in
the host country. 2 These studies view the
labor market performance of immigrants
in the host country as a measure of the
immigrant contribution to the economys
skill endowment and productivity. In addition, the trends in immigrant skills
help determine the impact of immigration on the employment opportunities of
native-born workers and on expenditures
in social insurance programs.
A. Aging and Cohort Effects
The pioneering work of Barry
Chiswick (1978) and Geoffrey Carliner
(1980) analyzed how immigrant skills
adapted to the host countrys labor market by estimating the cross-section regression model:
log wi = Xi + A i + oIi + 1yi + i,
(1)
where wi is worker is wage rate; Xi is a

vector of socioeconomic characteristics
which might include education and region of residence; Ai gives the workers
age or potential labor market experience;
Ii is a dummy variable indicating if the
worker is an immigrant; and yi gives the
number of years an immigrant worker
has resided in the United States (and is
set to zero for native-born workers). In
practice, the model typically includes
higher-order polynomials in age and
years-since-migration, and the coefficient vector (,) is allowed to vary between immigrants and natives. For sim2 These questions are not restricted to the modern literature. Paul Douglas (1919), for example,
analyzed the occupational distribution of immigrants who arrived during the First Great Migration to determine if the newer immigrants were as
skilled as the old.
1671
plicity, we restrict the discussion to the

simpler specification.
The coefficient 0 gives the percentage
wage differential between immigrants
and natives at the time of arrival, while
the coefficient 1 gives the rate at which
the earnings of immigrants rise relative
to the earnings of natives. The early
studies of wage determination among immigrant and native men in the United
States reached a quick consensus: the coefficient 0 was negative and the coefficient 1 was positive.3 The essence of the
results is summarized in Figure 1, which
illustrates the predicted immigrant and
native age-earnings profiles implied by
Chiswicks analysis of the 1970 Census.
At the time of arrival, immigrants earn
about 17 percent less than natives. Because immigrants experience faster wage
growth, immigrant earnings overtake
native earnings within 15 years after arrival. After 30 years in the United States,
the typical immigrant earns about 11
percent more than a comparable native
worker.
Two distinct arguments were used to
explain these results. At the time of arrival, immigrants earn less than natives because they lack the U.S.-specific skills
that are rewarded in the American labor
market (such as English proficiency). As
these skills are acquired, the human
capital stock of immigrants grows relative to that of natives, and immigrants
experience faster wage growth. The hu3 There is a widespread, though erroneous, perception that studies based on cross-section data
from other countries and other time periods reach
similar conclusions. However, Chiswicks (1980)
study of immigrants in Britain reports that yearssince-migration has no impact on immigrant earnings. Similarly, both Francine Blau (1979) and
Barry Eichengreen and Henry Gemery (1986) analyze the economic mobility of immigrants who entered the United States at the turn of the 20th
century, but reach conflicting conclusions. Blau
finds wage convergence between immigrants and
natives, while Eichengreen and Gemery find little
wage convergence between the two groups.
1672

Wage
Log Earnings
in 1970
9.1
Immigrants
1950 Cohort
9.0
8.9
Natives
8.8
8.7
8.6
1970 Cohort
and Natives
1990 Cohort
8.5
8.4
20
25
30
35
40 45
Age
50
55
60
65
Figure 1. The Cross-Section Age-Earnings Profiles

of Immigrants and Natives in the
United States, 1970
Source: Chiswick (1978, Table 2, Column 3). All the
variables in the regression are evaluated at the
means of the immigrant sample, and immigrants
are assumed to enter the United States at age 20.
man capital investment hypothesis, however, does not by itself generate an overtaking point. After all, why would immigrants accumulate more human capital
than natives? The overtaking point was
instead interpreted in terms of a selection argument: immigrants are more
able and more highly motivated than
natives (Chiswick 1978, p. 900), and immigrants choose to work longer and
harder than nonmigrants (Carliner
1980, p. 89). This assumption was typically justified by arguing that only the
most driven and most able persons have
the ambition and wherewithal to pack
up, move, and start life anew in a foreign
country.
The optimistic appraisal of immigrant
adjustment implied by the results summarized in Figure 1 was challenged by
Borjas (1985), who argued that the positive cross-section correlation between
the relative wage of immigrants and
years-since-migration need not indicate
that the wage of immigrants converges to
that of natives. The basic problem with
the assimilationist interpretation of the
R
C
20
40
60
Age
Figure 2. Cohort Effects and the Cross-Section

Age-Earnings Profile of Immigrants
regression in (1) is that it draws inferences about how the earnings of immigrant workers evolve over time from a
single snapshot of the immigrant population. It might be the case, however, that
newly arrived immigrants are inherently
different from those who migrated
twenty years ago. Hence we cannot use
the current labor market experiences of
those who arrived twenty years ago to
forecast the future earnings of newly arrived immigrants.
Figure 2 illustrates the implications of
this alternative hypothesis. For concreteness, consider a situation where there
are three separate immigrant waves, one
wave arrived in 1950, the second in
1970, and the last in 1990. Assume that
immigrants enter the United States at
age 20. The earliest cohort is assumed to
have the highest productivity level of any
group in the population, including U.S.born workers. If we could observe their
earnings in every year after they arrive in
the United States, their age-earnings
profile would be given by the line PP in
the figure. Lets also assume that the last
immigrant wave (i.e., the 1990 arrivals) is
the least productive of any group in the
population. Their age-earnings profile is
given by the line RR in the figure. Fi-

nally, suppose that the 1970 wave has the
same skills as natives; the age-earnings
profiles of the two groups is given by
QQ. There is no wage convergence between immigrants and natives in this hypothetical example.
Suppose we have access to data drawn
from the 1990 Census cross-section.
These data allow us to identify only one
point on each of the immigrant age-earnings profiles. In particular, we can observe the earnings of the immigrants who
arrived in 1990 when they are 20 years
old; the earnings of the 1970 arrivals at
age 40; and the earnings of the 1950 arrivals at age 60. The age-earnings profile
generated by the cross-section data,
therefore, is given by the line CC in Figure 2. The cross-section regression line
is steeper than the native age-earnings
profile, making it seem as if there is
wage convergence between immigrants
and natives, when in fact there is none.
Moreover, the cross-section regression
line crosses the native age-earnings profile at age 40, making it seem as if immigrant earnings overtake native earnings
after 20 years in the United States, when
in fact no immigrant group experienced
such an overtaking.
Figure 2 shows how a cross-section regression can yield erroneous insights
about the adaptation process experienced by immigrants if there are intrinsic differences in productivity across immigrant cohorts (or cohort effects).
Cohort effects can arise as a result of
changes in immigration policy. For example, the 1965 Amendments de-emphasized the role of skills in allocating entry
visas, and instead makes these awards
based almost entirely on whether the applicant has family ties with current U.S.
residents. If this policy shift generated a
less-skilled immigrant flow, the crosssection finding that more recent immigrants earn less than earlier immigrants
says little about wage convergence, but
1673
instead may reflect innate differences in

ability or skills across cohorts.
Cohort effects may also arise as a result of changes in economic or political
conditions in the source countries and in
the United States. Even if the United
States had not adopted the 1965 Amendments, improving economic conditions in
Western Europe would have reduced the
number of immigrants from these traditional source countries. The changing
national origin mix of the immigrant flow
generates cohort effects if skill levels
vary across countries or if skills from different countries are not equally transferable to the United States. Finally, cohort
differences in average productivity will
be observed in a cross-section when
there is nonrandom return migration. If
low-wage immigrant workers return to
their source countries, the earlier waves
have been weeded out and will have
relatively higher earnings than more recent waves.
It is evident that both the immigrant
and native populations must be tracked
over time to correctly measure wage convergence between immigrants and natives. Most longitudinal data sets either
contain very few immigrants or provide
nonrandom samples of the foreign-born
population. As a result, the literature has
pursued the alternative of creating synthetic cohorts of immigrants by tracking
specific immigrant waves across the decennial Censuses or across the Current
Population Surveys (CPS). The empirical
evidence typically found in these studies
is summarized in Table 3, which reports
the unadjusted percentage wage differential between immigrant and native
men in each of the decennial Censuses
between 1970 and 1990. 4
4 The calculations use a 1/500 random sample of
native workers and a 5/100 random sample of immigrant workers in each Census (except in 1970
when the immigrant extract forms a 2/100 random
sample). The resulting data set contains 920,700
1674
TABLE 3
PERCENTAGE WAGE DIFFERENTIAL BETWEEN
IMMIGRANT AND NATIVE MEN, 19701990
Group:
All Immigrants
Cohort:
19851989 Arrivals
19801984 Arrivals
19751979 Arrivals
19701974 Arrivals
19651969 Arrivals
19601964 Arrivals
19501959 Arrivals
Pre-1950 Arrivals
1970
1980
1990
.9
9.2
15.2
16.6
4.4
5.6
10.3
27.6
18.9
-7.8
.1
5.7
10.6
31.7
27.8
17.8
9.3
1.1
9.0
19.6
26.2
Source: Authors tabulations from the 1970, 1980, and

1990 Public Use Samples of the U.S. Census. The
statistics are calculated in the subsample of men
aged 2564 who work in the civilian sector, who are
not self-employed, and who do not reside in group
quarters.
Each Census cross-section shows that

immigrants who have been in the United
States for several decades have higher
wages than natives, while more recent
arrivals have lower wages. In 1990, for
example, immigrants who arrived in the
United States between 1950 and 1960
earned 19.6 percent more than natives,
while immigrants who arrived between
1985 and 1989 earned 31.7 percent less.
The data, however, also support the hypothesis that there exist cohort effects in
the foreign-born population, with more
recent immigrant cohorts having relatively lower wage rates. For example, the
most recent cohort enumerated in the
1970 Census (i.e., the 19651969 arrivals) earned only 16.6 percent less than
natives in 1970; the wage gap between
the most recent arrivals and natives grew
observations. The percent wage differential between immigrants and natives equals 100(e x 1),
where x is the difference in average log wages between the groups. See Borjas (forthcoming) for a
more detailed discussion of the data and of the
trends in immigrant earnings.
to 27.6 percent by 1980, and to 31.7 percent by 1990.5

Because of these cohort effects, the
cross-section relationship between the
relative wage of immigrants and yearssince-migration overestimates the wage
growth actually experienced by a particular cohort. The 1990 cross-section suggests that over a 20-year period (1970 to
1990), the relative earnings of immigrants grow by about 33 percentage
points. 6 In fact, the relative wage of the
1965-1969 wave increased by only 18
percentage points over the 20-year period, or about half of the cross-section
rate of convergence.
The implications of the data summarized in Table 3 are clear and provocative. If we interpret the difference in
wages between immigrants and natives
as a measure of relative skills, more recent immigrant waves are relatively less
skilled than earlier waves. Moreover, immigrant wage growth is more sluggish
than suggested by the early cross-section
studies. It is extremely unlikely that the
earnings of more recent cohorts will ever
reach parity with (let alone overtake) the
earnings of natives.
5 These results differ slightly from those reported by Edward Funkhouser and Trejo (forthcoming), who use CPS data from various supplements to describe the trend in immigrant skills
during the 1980s. The CPS data indicate that the
decline in relative skills was reversed somewhat by
the late 1980s. The CPS, however, contains relatively small samples of immigrants. In addition,
the national origin composition of immigrant cohorts is extremely unstable across CPS surveys.
For instance, 21 percent of the cohort that immigrated between 1982 and 1984 in the June 1988
CPS is of Mexican origin, while the respective statistic for the same cohort in the November 1989
CPS is 37 percent. These statistics suggest that the
change in the relative immigrant wage across the
Current Population Surveys provides unreliable
measures of both cohort effects and of the rate of
wage convergence.
6 This statistic is calculated by comparing the
relative wage of the immigrants who arrived in the
late 1980s with the relative wage of the immigrants who arrived in the late 1960s.

Needless to say, these findings have
generated a great deal of controversy
and debate. (See, for example, Chiswick
1986; Harriet Orcutt Duleep and Mark
Regets 1992b; Robert LaLonde and
Robert Topel 1992; and Andrew
Yuengert 1994.) Many of these studies
(including the original work of Borjas,
1985) point out that interpreting the intercensal trend in the relative wage of
immigrants as a measure of relative
changes in skills implicitly assumes that
period effects influence the wage of immigrants and natives by the same relative
amount. To see this point formally, consider the following generic model that
characterizes the analytical framework
now used in the literature. Suppose we
pool all the data in two cross-sections
(such as the 1980 and 1990 Censuses)
and estimate the regression equations:
log wij = Xji + iA j + yj + Cj
+ ij + ij, (2)
log wnl = Xln + nA l + nl + nl,
(3)
where wij gives the wage of immigrant j;

wnl gives the wage of native l; X gives a
vector of standardizing socioeconomic
characteristics; A gives the workers age
at the time of the Census; y gives the
number of years that the immigrant has
resided in the United States; C is the calendar year of arrival in the United
States; and is a dummy variable indicating if the observation was drawn
from the 1990 Census. To easily illustrate the identification problem, the
age, years-since-migration, and calendar
year-of-arrival variables are entered linearly.
The coefficients i and n give the period effects for immigrants and natives,
respectively. The coefficient n gives the
aging effect for natives; the rate at which
native earnings increase over the life cycle. The respective aging effect for immigrants is given by i + . The age-
1675
earnings profiles of immigrants and natives converge if ( i + ) > n (assuming

immigrants earn less than natives at the
time of arrival). 7 Finally, the coefficient
measures the cohort effect, the rate of
change in the entry wage across immigrant cohorts. 8
It is well known that the key parameters of the regression model in equations
(2) and (3) are not identified. The yearssince-migration variable is a linear combination of the period effect and the cohort variable:
yi i(1990 Ci) + (1 i) (1980 Ci)
= 1980 Ci + 10.
(4)
In order to identify the period effects,

the aging effects, and the cohort effect,
therefore, a restriction must be imposed
on the model. One possible restriction is
that the period effects are the same for
immigrants and natives, or:
i = n.
(5)
Equation (5) implies that the relative

wage of immigrants and natives is independent of secular changes in the wage
level. We implicitly imposed this restriction on the data when we interpreted the
intercensal trends in Table 3 as changes
in the relative skills of immigrants. By
netting out the secular trend in the native wage (i.e., by using a difference-indifferences estimator), we are simply left
with the trend in immigrant productivity.
Note, however, that the wage is the
product of the rate of return to skills
times the workers human capital stock.
7 Although the regression model in (2) assumes
that the aging effect is the same for all immigrant
cohorts, many of the empirical studies in the literature relax this assumption.
8 The model assumes that there are no cohort
effects in the native population (perhaps due to
changes in the quality of education). Even though
this is a standard assumption in the literature, the
estimated cohort effects in the immigrant population may be sensitive to the existence of cohort
effects among native workers.
1676

TABLE 4
EDUCATIONAL ATTAINMENT OF IMMIGRANT AND NATIVE MEN, 19701990
1970
1980
1990
Percent
High School
Dropouts
Percent
College
Graduates
Percent
High School
Dropouts
Percent
College
Graduates
Percent
High School
Dropouts
Percent
College
Graduates
Natives
Immigrants
39.6
48.2
15.4
18.9
23.1
37.4
22.9
25.3
14.8
36.9
26.6
26.6
Cohort:
198589 Arrivals
198084 Arrivals
197579 Arrivals
197074 Arrivals
196569 Arrivals
196064 Arrivals
195059 Arrivals
Pre-1950 Arrivals
45.2
44.8
47.4
51.7
28.3
21.1
17.1
15.0
36.2
44.0
41.6
34.7
31.4
35.3
30.4
24.9
24.7
24.8
23.7
21.6
35.2
40.4
42.2
42.7
34.1
27.5
25.9
25.2
31.5
24.1
24.8
24.1
26.2
27.9
27.8
31.8
Group
Source: Authors tabulations from the 1970, 1980, and 1990 Public Use Samples of the U.S. Census. The statistics
are calculated in the subsample of men aged 2564 who work in the civilian sector, who are not self-employed, and
who do not reside in group quarters.
If period effects influence the price of

skills differently for immigrants and natives, the intercensal change in relative
wages could be reflecting differences in
prices rather than differences in human
capital.
There were historic changes in the
U.S. wage structure during the 1980s
and these changes did not affect all skill
groups equally (Frank Levy and Richard
Murnane 1992). In particular, there was
a sizable increase in the wage gap between highly educated and less educated
workers; and among workers within narrowly defined occupation and industry
cells. It is unlikely that these changes in
the wage structure affected the earnings
of immigrant and native workers by the
same percentage amount. The immigrant
population in the United States is relatively unskilled (at least in terms of educational attainment). Because the rate of
return to skills increased during the
1980s, the relative wage of immigrants
would have fallen between 1980 and

1990 even if immigrant skills had remained constant. In other words, the
changes in the wage structure could account for both the observed decline in
the relative wage of successive immigrant cohorts and for the sluggish wage
growth experienced by a particular cohort as it entered the 1980s.
It is unlikely, however, that changes in
the wage structure account for the downward trend in relative wages across successive immigrant cohorts or for the slow
wage convergence between immigrants
and natives. Consider the trends in immigrant educational attainment, a skill
measure that is invariant to changes in
the wage structure. Table 4 documents
the changes in the schooling distribution
of immigrants and natives in the past two
decades. In 1970, 39.6 percent of natives
were high school dropouts; by 1990, only
14.8 percent of natives lacked a high
school diploma. Among immigrants, 48.2
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percent were dropouts in 1970, 37.4 percent in 1980, and 36.9 percent in 1990.
Relative to natives, immigrants were
about 21.7 percent more likely to be
high school dropouts in 1970, but are
now more than twice as likely to be high
school dropouts.
Moreover, even though the percentage
of immigrant workers who are college
graduates rose during the period, the
percentage of natives who are college
graduates rose even faster. Immigrants
were more likely to be college graduates in 1970 (18.9% for immigrants as
compared to 15.4% for natives). By
1990, both groups had exactly the same
probability of being college graduates
(26.6%). Therefore, changes in the
quantity of immigrants human capital
are partly responsible for the decline in
the relative immigrant wage.
It is also easy to show that changes in
the U.S. wage structure were not sufficiently large to account for a sizable part
of the declining relative wage of immigrants across successive waves. For example, we know that the wage structure
changed in different ways for various
age-education groups, with groups with
more education and experience having
larger wage growth between 1970 and
1990. We can then use the wage growth
observed in 56 age-education cells
among native workers to deflate the
wage growth of immigrants in the same
age-education cells.9 To take into account changes in wage inequality even
9 The eight age categories are: 2529 years old;
3034; 3539; 4044; 4549; 5054; 5559; and
6064. The seven education categories are: less
than 8 years of schooling; 9 years; 1011 years; 12
years; 1315 years; 16 years; and more than 16
years. Define D rs(t) to be the wage growth experienced by the typical native worker in age group r
and education group s between 1970 and year t(t =
1980, 1990). The deflated wage is then given by
^ , (t) = log w , (t) (t) , where log w , (t) is
log w
l rs
l rs
rs
l rs
the log wage of person l in skill group rs in Census
year t.
1677
within age and education cells, LaLonde

and Topel (1992) suggest using a deflator based on an immigrants ranking in
the native wage distribution. If all workers who fall in the pth percentile of the
wage distribution are equally skilled,
then we can use the wage growth experienced by natives in the pth percentile to
deflate the wage growth of immigrants
who fall in the same percentile in the
19701990 period.10
Table 5 reports the changes in the deflated relative wage of immigrants between 1970 and 1990. Regardless of
which deflator is used, more recent immigrant cohorts have substantially lower
relative wages than earlier cohorts. The
most recent cohort in 1970 earned 16.6
percent less than natives at the time of
arrival. The most recent cohort in 1990
earned 29.5 percent less than natives if
we use the deflator based on age-education cells, and 29.4 percent less if we use
the percentile deflator. The change in
the wage structure, therefore, accounts
for only 15 percent of the drop in the
relative immigrant wage between 1970
and 1990.
The cohort and aging effects calculated from the synthetic cohorts in the
Census data may be biased because the
sample composition of a particular immigrant cohort changes systematically
across Censuses. Perhaps one-third of
immigrants in the United States eventu10 Neither deflator fully solves the problem of
accounting for changes in the wage structure. The
age-education deflator, for example, ignores the
increase in inequality that occurred within ageeducation cells. The percentile deflator assumes
that immigrants and natives in the p th percentile
are perfect substitutes. This is unlikely to be true.
Newly arrived immigrants might place badly in the
native wage ranking not because they are unskilled, but because they are going through an
initial testing period. In the end, therefore, an
immigrant who initially places in the p th percentile
may have skills that are comparable to those of
natives in the (p + q)th percentile, where q > 0.
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1678
TABLE 5
PERCENTAGE WAGE DIFFERENTIAL BETWEEN IMMIGRANT, AND NATIVE, MEN, 19701990, DEFLATED BY
CHANGES IN WAGE STRUCTURE
Using Age-Education
Deflator
Group:
All Immigrants
Cohort:
19851989 Arrivals
19801984 Arrivals
19751979 Arrivals
19701974 Arrivals
19651969 Arrivals
19601964 Arrivals
19501959 Arrivals
Pre-1950 Arrivals
Using Percentile Deflator
1970
1980
1990
1980
1990
.9
9.4
14.4
8.6
13.9
16.6
4.4
5.6
10.3
25.2
17.5
8.2
1.0
3.9
4.7
29.5
25.0
15.8
8.8
.2
6.0
13.1
16.0
26.2
17.9
7.2
.2
5.4
10.2
29.4
25.4
16.0
-8.3
1.1
7.9
17.1
23.2
ally return to their countries of origin

(Robert Warren and Jennifer Peck
1980). Suppose that the return migrants
are mainly composed of workers with
lower than average wages (i.e., the failures). The intercensal tracking of a particular cohort would reveal an improvement in relative wages even if no wage
convergence is taking place. Alternatively, if the return migrants are successes, the rate of wage convergence
would be underestimated. Because data
on the size and composition of the return
migration flow is scarce, few studies systematically analyze the selection mechanism generating the return migration
flow (the limited available evidence is
discussed in the next section). As a result, the bias introduced by nonrandom
return migration is typically ignored.
Even if there were no return migration, Rachel Friedberg (1992) and James
Smith (1992) have shown that the sample
composition of a particular immigrant
cohort changes over time because the
sample of working-aged immigrants in
later Censuses includes a larger number

of persons who migrated as children.11
The economic experiences of immigrant
children may resemble those faced by
native workers. The inclusion of the immigrant children in later Censuses thus
biases the estimated rate of wage convergence upward. A better measure of wage
convergence, therefore, is obtained by
tracking a specific immigrant cohort, defined in terms of both year-of-migration
and age-at-arrival, across the various
Censuses.
Table 6 summarizes the trend in the
percent wage differential between a particular group of immigrants and similarly
aged natives, so that immigrants who arrived when they were between 25 and 34
years old in the late 1960s are compared
11 An earlier study by Sherrie Kossoudji (1989)
used the 1976 Survey of Income and Education
cross-section to estimate models of occupational
mobility which differentiate between persons who
migrated as children and those who migrated as
adults. She finds that controlling for age-at-migration leads to flatter occupational mobility profiles
among immigrants than among natives.
1679
TABLE 6
PERCENTAGE WAGE DIFFERENTIAL BETWEEN IMMIGRANTS AND NATIVES, BY AGE GROUP
AND YEAR OF ARRIVAL
Actual Wage
Using Age-Education
Deflator
Actual Wage
Cohort/Age Group:
1970
1980
1990
1980
1990
19601964 Arrivals:
1524 in 1970
2534 in 1970
3544 in 1970
4554 in 1970
3.1
6.0
11.1
1.1
.3
6.7
10.8
4.2
.2
1.1
.9
.0
6.7
10.9
4.5
.1
1.4
19651969 Arrivals:
1524 in 1970
2534 in 1970
3544 in 1970
4554 in 1970
12.0
15.9
22.5
4.6
5.9
15.3
21.1
6.9
2.5
8.8
6.2
5.4
15.5
21.6
5.5
2.3
8.3
19701974 Arrivals:
2534 in 1980
3544 in 1980
4554 in 1980
11.4
17.7
26.0
11.8
16.4
20.7
12.5
17.1
26.4
10.4
15.6
20.0
19751979 Arrivals:
2534 in 1980
3544 in 1980
4554 in 1980
21.3
24.9
29.8
15.5
24.1
26.3
21.2
24.2
29.8
14.8
23.4
26.1
19801984 Arrivals:
2534 in 1990
3544 in 1990
4554 in 1990
18.6
25.3
34.0
18.2
24.5
33.0
19851989 Arrivals:
2534 in 1990
3544 in 1990
4554 in 1990
23.0
28.6
36.2
23.5
28.3
35.7
to natives aged 2534 in 1970, to natives

3544 in 1980, and to natives aged 4554
in 1990. About half of the wage convergence implied by the statistics presented
in Table 5 disappears after controlling
for age-at-migration. Consider, for example, the group of immigrants who arrived
between 1965 and 1969 and who were
2534 years old in 1970. They earned
12.0 percent less than natives in 1970
and 2.5 percent less in 1990. Over a 20-
year period, therefore, the relative wage

of this immigrant cohort increased by 10
percentage points, in contrast to the 18
percent growth suggested by the intercensal comparison that does not control
for age-at-migration and to the 33 percent growth implied by the 1990 crosssection.
Table 6 reveals that practically all immigrants, regardless of when they arrived in the country, experience the
1680
same sluggish relative wage growth. This

result is significant because it suggests
that more recent immigrant cohorts have
not had faster wage growth despite their
lower starting positions.12 In fact, immigrants who arrived during the 1970s experienced the same wage growth as
those who arrived during the 1960s during their first decade in the United
States. Immigrants who arrived between
1975 and 1979 and were around age 30
at the time of arrival earned 21.3 percent
less than natives in 1980 and 15.5 percent less than natives in 1990, an increase of only 5.8 percentage points.
This wage growth is similar to that experienced by similarly aged immigrants
who arrived between 1965 and 1969;
they earned 12.0 percent less than natives in 1970 and 5.9 percent less in
1980.
Many studies have confirmed that
there has been an overall decline in the
relative skills of successive immigrant cohorts. For example, Yuengert (1994, p.
86) finds that the relative wage of the
immigrants who migrated in the late
1960s was about 9 percentage points
lower than the relative wage of those
who arrived in the 1950s; LaLonde and
Topel (1992, p. 89) report a 22 percentage point drop in the relative wage of
immigrants cohorts between the late
1960s and the late 1970s; and Funkhouser and Trejo (forthcoming, Table 6)
report a 10 percentage point drop during
the same period. There is also a consen12 Duleep and Regets (1992b) use the 1970 and
1980 Censuses to estimate correlations between
wage growth and entry wages across national origin groups. These correlations tend to be negative,
leading them to conclude that the low entry wage
of the immigrants who arrived in the late 1970s
did not represent their true quality because they
would have faster wage growth than earlier immigrants. The additional data provided by the 1990
Census indicates that the less-skilled cohorts who
migrated in the 1970s did not, in fact, experience
faster wage growth than earlier waves.
sus that much of the decline is due to

changes in observables. Both Funkhouser and Trejo (forthcoming, Table 6)
and LaLonde and Topel (1992, p. 89)
conclude that at least two-thirds of the
decline can be attributed to changes in
the educational attainment of immigrants relative to natives. Some studies
also show that the changing national origin mix of the immigrant flow (which obviously implies changes in the observable
skills of immigrants) accounts for much
of the decline in skills across successive
cohorts. This result will be discussed in
detail below.
B. Wage Convergence Between
Immigrants and Ethnically Similar
Natives
The data summarized in the previous
section describe how the immigrant
wage adjusts relative to that of the typical native worker. Because recent immigrant waves start off at such a disadvantage, it is not too surprising that their
earnings fail to reach parity with the
earnings of the average U.S.-born worker
(who is typically a white person of European ancestry). A number of studies thus
investigate if immigrant earnings converge to the earnings of U.S.-born workers who share the same ethnic background. These intra-ethnic comparisons
can help assess if the new immigration
will exacerbate the ethnic differences already prevalent in the U.S. labor market.
There is, however, little consensus on
whether the relative skills of immigrants
declined within specific ethnic groups,
or on whether the wage of immigrants
converges to that of ethnically similar natives. Most studies typically focus on
four large ethnic groups: Mexican immigrants, other Hispanic immigrants, Asian
immigrants (excluding the Middle East),
and white immigrants (defined as per-
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1681
TABLE 7
PERCENTAGE WAGE DIFFERENTIAL BETWEEN IMMIGRANTS AND NATIVES OF SAME ETHNIC BACKGROUND
(Using Age/Education Deflator)
Mexican
Cohort/Age Group
1970
1980
Other Hispanics
1990
1970
1980
196064 Arrivals
1524 in 1970
2534 in 1970
3544 in 1970
1.8 5.1
5.8 9.6 16.0
22.4 19.7 14.2
9.0
8.0
196569 Arrivals
1524 in 1970
2534 in 1970
3544 in 1970
1990
Asian
White
1970
1980
1990
1970
1980
1990
20.3
16.9
8.5
29.2
19.1
6.9
13.7 15.3
1.9
15.0
4.1
.2
11.7
17.1
9.5
4.5
2.7
7.9
3.9
10.3
10.3
14.3
11.7 13.0
26.5 16.5 19.5 15.8
32.5 23.0 -29.2 15.9
.6
3.4
9.8
3.1
9.0
.1 17.6
9.1
6.5 15.2 13.1
3.0
8.5
5.6
.3
5.4
.5
2.9
6.2
7.1
12.3
9.4
5.3
3.9
2.9
6.9
8.1
3.0
19.7 10.2
28.1 25.8
.6
1.8
11.7
4.2
197074 Arrivals
2534 in 1980
3544 in 1980
19.5 21.2
23.8 29.3
7.1
11.7
1.0
6.8
197579 Arrivals
2534 in 1980
3544 in 1980
33.8 29.5
38.3 36.7
21.5 16.7
22.4 15.2
198084 Arrivals
2534 in 1990
3544 in 1990
25.0
39.6
19.7
27.3
14.9
28.8
12.4
10.1
198589 Arrivals
2534 in 1990
3544 in 1990
33.9
45.1
28.2
36.2
24.3
30.6
4.0
1.2
18.5
26.2
11.4
13.1
16.1
16.4
21.7
62.4
36.8
21.5
Percent of Immigrant
Population Belonging
to Particular Ethnic
Group
9.7
8.6
2.7
9.9
sons originating in Europe or Canada). 13

The four native base groups are: Mexican-American natives (i.e., U.S.-born
persons of Mexican ancestry); other Hispanic-American natives (all other U.S.born persons who report being of His13 Kristin Butcher (1994) describes the process
of wage convergence between black immigrants
and U.S.-born black workers, and finds that the
labor market experience of black immigrants resembles that of black natives who had moved out
of their state of birth.
panic ancestry); Asian-American natives

(non-Hispanic persons whose race is
Asian); and white natives (non-Hispanic
whites).
Table 7 summarizes the trends in the
wage of immigrants in particular cohorts
and age groups relative to ethnically
similar natives in the same age group, so
that Mexican immigrants aged 2534 in
1970 are contrasted with MexicanAmerican natives aged 2534 in 1970,
with Mexican-American natives aged 35
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1682
44 in 1980, and with Mexican-American

natives aged 4554 in 1990. There are
interesting differences in the direction
and magnitude of cohort effects across
the various groups. The relative wage of
successive waves of Mexican immigrants
declined during the past two decades. In
1970, the typical Mexican immigrant
aged 2534 who had just arrived in the
United States earned 26.5 percent less
than the typical Mexican-American native; by 1990, the latest wave of Mexican
immigrants earned 33.9 percent less than
their native counterparts. Note, however, that the wage gap between Mexican
immigrants and Mexican-American natives underestimates the true economic
status of Mexican immigrants in the
United States. After all, Mexican-American natives are themselves a relatively
disadvantaged group, earning 16 percent
less than the typical U.S.-born worker in
1990.
The relative wage of other Hispanic
immigrants and Asian immigrants also
fell across successive cohorts. In contrast
to these groups, the relative wage of successive waves of European and Canadian
immigrants rose slightly between 1970
and 1990. The most recent white arrivals (aged 2534 at the time of arrival)
earned .3 percent more than white natives in 1970, but by 1990 they earned 4
percent more.
The raw data thus suggest that some
groups experienced a decline in relative
wages across successive cohorts, while
white immigrants experienced an increase. The data also indicate that most
non-Asian cohorts experienced a 5 to 10
percentage point increase in their relative wage between 1970 and 1990. For
instance, the Mexican immigrant who
had just arrived in the United States in
1970 and was between 25 and 34 years
old earned 26.5 percent less than the
typical Mexican-American native. By
1990, the wage gap had narrowed by only
7 percentage points. Similarly, the typical white immigrant in the same age
group who had just arrived in the United
States in 1970 earned .3 percent more
than white natives, and this wage gap
grew to 12.3 percent by 1990. This rate
of wage convergence allows white immigrants to substantially outperform white
natives after 20 years in the United
States, but prevents Mexican immigrants
from reaching wage parity with MexicanAmerican natives.
Finally, there seems to be a structural
shift in the rate of wage convergence for
Asian immigrants who migrated after
1970. Asian immigrants who migrated in
the 1960s experienced a very high rate of
wage convergence. The typical Asian immigrant who arrived in the late 1960s
(and was 2534 years old at the time of
arrival) earned 17.6 percent less than
Asian-American natives in 1970, and
about 9 percent more in both 1980 and
1990. In contrast, a similarly aged Asian
immigrant who arrived in the late 1970s
earned 19.7 percent less than AsianAmerican natives in 1980, and 10.2 percent less in 1990. In effect, this later cohort of Asian immigrants has a rate of
wage convergence which is half of that
experienced by earlier immigrant waves.
Table 7 thus suggests that there is a
great deal of diversity in the economic
experiences of various immigrant groups
in the United States. In view of this diversity, it is not surprising that there is a
great deal of disagreement in the literature (which is mostly based on comparisons of the 1970 and 1980 Censuses) as
to whether there has been a decline in
the average skill level of successive immigrant waves within ethnic group, and
on whether there is wage convergence
with ethnically similar natives. For example, Smith (1992, p. 79) concludes that
there is very little within-cohort wage
assimilation for [Mexican] immigrants
across their labor market careers, and

that there is strong evidence of declining labor market quality. In contrast,
LaLonde and Topel (1992, p. 82) conclude that Mexican immigrants show
substantial assimilation with no significant evidence of a decline in immigrant
quality. Even more striking, Yuengerts
(1994, p. 86) examination of the same
data reveals an increase in the skill level
of Mexican immigrant cohorts over time,
with Mexicans who arrived between 1965
and 1969 having 13 percent higher relative earnings than those who arrived in
the 1950s.
There are many differences across
these studies which can potentially explain the disparity in results. Smith, for
example, stresses the importance of controlling for age-at-migration when estimating the rate of wage convergence, a
variable that LaLonde and Topel and
Yuengert ignore. In contrast, LaLonde
and Topel stress the importance of controlling for the impact of changes in the
wage structure on the wage of different
skill groups, a factor that Smith ignores.
The data summarized in Table 7 controls both for age-at-migration and for
changes in the wage structure, as well as
extends the span of time studied by another decade (using the 1990 Census).
Although intra-ethnic comparisons are
common in the literature, there are a
number of conceptual problems in these
studies that have not been sufficiently
appreciated. Most obvious is the aggregation bias introduced by pooling immigrants from different countries into a
particular ethnicity (such as creating
the Asian group by combining persons
from countries as diverse as India, Japan, and Vietnam). Because immigrant
groups from different countries differ
substantially, it is doubtful that the composite other Hispanic or Asian resembles the average person in any of the
national origin groups making up the
ethnic category. Moreover, there are siz-
1683
able changes in the national origin mix of

the immigrant flow over very short time
periods even within a particular ethnic
group. As a result, we do not know how
to interpret the cohort effects or the
changes in the rate of wage convergence
among Asians or other Hispanics unless
we deal directly with a more primitive
definition of ethnicity (i.e., the one that
coincides with national origin).
Moreover, the composition of the native base in these broadly defined ethnic
groups is changing systematically over
time. In 1970, for example, there were
few adult Cubans in the other HispanicAmerican native sample. By 1990, as the
U.S.-born children of the early Cuban
waves enter the labor market, the wage
of the other Hispanic native base is
partly determined by the skill endowment of immigrant flows that arrived a
generation earlier. The comparison of
Hispanic immigrants to Hispanic-American natives in 1970 thus differs fundamentally from the comparison of Hispanic immigrants to Hispanic-American
natives in 1990.
Most importantly, there is a sense in
which these intra-group comparisons
miss the point. What would we conclude
if the relative wage of Mexican immigrants converged to that of MexicanAmerican natives, or the relative wage of
Asian immigrants converged to that of
Asian-American natives? The fact remains that the wage of Mexican-American natives is itself 16 percent below that
of the typical U.S.-born worker, while
the wage of Asian-American natives is 12
percent above. Intra-group convergence
is not an interesting phenomenon if we
want to identify the groups of native
workers who are most likely to be adversely affected by immigration, or if we
are concerned about the impact of immigration policy on poverty rates, on the
costs of welfare programs, and on the
contribution of immigrants to the econ-
1684
omys skill endowment. The costs and

benefits of immigration are more closely
related to how immigrants perform relative to the population average than to
how immigrants perform relative to a
nonrandom subset of the population.
C. Language and the Process of Wage
Convergence
Although there are many estimates of
the rate of wage convergence between
immigrants and natives, we do not yet
understand why some wage convergence
takes place. For the most part, the studies investigating the differential accumulation of human capital by immigrants
and natives focus on one single factor,
the acquisition of language capital in
the host country.
The early work of Gilles Grenier
(1984), and Walter McManus, William
Gould, and Finis Welch (1983) concluded that U.S. immigrants who are
proficient in the English language have
higher earnings than immigrants who are
not.14 Grenier reports that Hispanic immigrants who do not speak English pay a
17 percent wage penalty, even after adjusting for differences in education and
other socioeconomic characteristics. This
wage differential implies a $96,600 (in
1993 dollars) increase in lifetime earnings for a Hispanic immigrant who becomes proficient in the English language
(McManus 1985). Presumably, proficiency in the host countrys language increases immigrant earnings because bilingualism opens up many employment
opportunities.
There also seems to be a link between
English language proficiency and the
rate of wage convergence between immigrants and natives. Chiswick (1991), for
14 Similar findings are reported in Carliners
(1981) study of immigrants in Canada. David
Bloom and Grenier (1992) and Chiswick and Paul
Miller (1992) compare the returns to language
capital in the United States and Canada.
example, documents that an additional

year of residence in the United States increases the probability of English proficiency by about 3 percentage points in a
small sample of illegal aliens apprehended in Los Angeles. Moreover, adding variables measuring the workers
English skills to a cross-section earnings
function reduces the coefficient of yearssince-migration by 10 to 20 percent
(Evelina Tainer 1988; Chiswick 1991).
In 1990, 47.0 percent of the immigrant
stock in the United States did not speak
English very well (U.S. Department of
Commerce 1993a, p. 129). Given the apparent high returns to English language
proficiency, it is worth asking why more
immigrants do not pursue this human
capital investment. The rate of return to
language capital, however, may have
little to do with the wage differential
between immigrants who are Englishproficient and immigrants who are not.
English proficiency and earnings might
be correlated simply because more able
workers are likely to speak English and
to earn more. Some studies correct for
the endogeneity of the language variable
by using instrumental variable estimators, but these attempts are not convincing. For example, Chiswick and Miller
(1992, p. 265) use such instruments as
the workers veteran status, number of
children, and the fraction of persons in
the state who speak the same language.
It is doubtful that this set of identifying
instruments is correlated with English
proficiency, but is not correlated with
the workers earnings capacity.
Even if language proficiency were exogenous, the returns to language capital
are affected by the clustering of immigrants in ethnic enclaves, such as the Cubans in Miamis Little Havana and the
Mexicans in East Los Angeles. Immigrants residing in these enclaves might
face low returns to language capital because most of their economic exchanges

are with persons of the same ethnic (and
linguistic) background. For example, almost half of the Cubans who arrived in
the Mariel boatlift in 1980 worked for
Cuban employers in 1986 (Alejandro
Portes 1987). 15 McManus (1990) finds
that the wage gap between Hispanics
who are English proficient and Hispanics
who are not is 26 percent for workers
who live in a county that is only 10 percent Hispanic, but falls to 11 percent for
workers who live in a county that is 75
percent Hispanic.
Although many studies measure the
correlation between language capital and
wage convergence, there are many other
variables which influence the assimilation process, such as the acquisition of
formal education or on-the-job training
in the post-migration period, investments in geographic mobility within the
host country, and differences in job
search activities. Few studies, however,
investigate how natives and immigrants
differ in these human capital investments.16
4. National Origin and the
Self-selection of Immigrants
Why did the relative wages of successive immigrant cohorts arriving in the
United States decline? The empirical
evidence suggests that one single factor,
the changing national origin mix of the
immigrant flow, can explain much of the
decline (Borjas 1992b; LaLonde and
Topel 1992).
15 Borjas (1990, ch. 10) and Ivan Light and
Edna Bonacich (1988) provide detailed studies of
self-employment in the immigrant population.
16 An exception is given by Ann Bartels (1989)
analysis of the internal migration decisions of foreign-born workers in the United States. Bartel
finds that immigrants choose to reside in areas
where there are other immigrants, and that their
internal migration decision are much less sensitive
to regional wage differentials than those of natives.
1685
A. National Origin and the

Decline in Immigrant Skills
Table 8 illustrates the huge differences in educational attainment and
earnings across national origin groups in
1990. Mean years of schooling range
from eight years for immigrants originating in Mexico or Portugal, to about 15
years for immigrants originating in such
diverse countries as Austria, India, Japan, and the United Kingdom. Similarly,
immigrants from El Salvador or Mexico
earn 40 percent less than natives, while
immigrants from Australia or South Africa earn 30 to 40 percent more than natives. These differences cannot be attributed to the fact that some national origin
groups have lived in the United States
for longer periods. There is substantial
dispersion in both educational attainment and relative wages even among immigrants who have been in the country
more than 10 years.
In view of the post-1950 changes in
the national origin mix of immigrant
flows, it is not surprising that these
changes explain the decline in relative
wages across successive immigrant
waves. Borjas (1992b, p. 41) decomposes
the skill decline into a portion due to
changes in the national origin mix and
into a portion due to the changing skill
level of immigrants from specific countries. The changing national origin mix
explains over 90 percent of the decline
in educational attainment and relative
wages across successive waves between
1960 and 1980.
To some extent, the inter-group variation in skills documented in Table 8
mirrors the dispersion in skills across the
populations of the various source countries. There is, for example, a great deal
of dispersion in educational attainment
across countries (Robert Barro and JongWha Lee 1993). Even if the immigrant
flow was randomly drawn from the popu-
TABLE 8
EDUCATIONAL ATTAINMENT AND WAGES OF IMMIGRANT MEN IN 1990, BY NATIONAL ORIGIN GROUP
Percentage Wage
Differential Between
Immigrants and Natives
Educational Attainment
All
Immigrants
Pre-1980
Arrivals
All
Immigrants
Pre-1980
Arrivals
Europe:
Austria
Czechoslovakia
France
Germany
Greece
Hungary
Italy
Poland
Portugal
U.S.S.R.
United Kingdom
Yugoslavia
14.68
14.46
14.76
13.88
11.83
13.59
10.90
12.77
8.29
14.23
14.60
11.75
14.50
14.49
14.03
13.69
11.59
13.37
10.71
12.36
8.40
14.17
14.35
11.47
38.4
25.9
25.7
24.5
.9
27.3
16.1
.3
3.1
6.2
37.2
11.5
40.9
37.4
27.8
25.1
2.4
31.9
17.4
19.8
.1
20.2
37.9
17.5
Asia:
Cambodia
China
India
Iran
Japan
Korea
Laos
Lebanon
Philippines
Taiwan
Vietnam
10.22
12.82
15.94
15.52
15.18
14.25
9.98
14.16
14.05
16.32
12.26
11.71
13.20
16.61
15.90
14.67
14.87
10.49
13.90
14.09
17.18
13.25
30.8
21.3
17.6
6.8
49.3
12.0
32.4
2.0
5.9
13.9
18.9
14.6
1.9
56.2
18.6
27.5
10.8
28.3
10.2
9.7
50.7
2.4
Country of Birth
,
,
North and South America:

Argentina
Canada
Colombia
Cuba
Dominican Republic
Ecuador
El Salvador
Guatemala
Haiti
Jamaica
Mexico
Nicaragua
Panama
Peru
13.35
13.79
12.08
11.74
10.28
11.55
8.61
9.23
11.22
11.97
7.61
11.73
13.41
12.99
13.17
13.56
12.31
12.26
10.46
11.88
9.60
10.27
12.22
12.35
7.56
12.32
13.44
13.13
4.7
24.0
19.1
15.3
29.2
20.6
39.7
38.2
30.2
11.2
39.5
34.8
1.9
20.6
17.2
23.9
5.5
5.3
21.7
9.6
27.5
21.8
13.6
3.1
32.3
11.3
11.3
.3
Africa:
Egypt
Ethiopia
Nigeria
South Africa
15.62
13.97
15.80
15.91
15.71
15.43
16.52
15.93
12.2
21.0
18.9
43.6
41.9
6.5
3.9
58.4
Australia
15.21
15.10
33.0
30.5
Source: See Table 3. The educational attainment of native men in 1990 is 13.2 years.

lation of the source countries, the educational attainment of immigrants who entered the United States in the 1980s
would differ from that of earlier immigrant waves.
To illustrate the importance of this
compositional effect, Borjas (1992b) calculated the average schooling level of
the country represented by the typical
immigrant for a number of immigrant
waves. The typical immigrant who arrived between 1955 and 1960 originated
in a country where the average person
had 9.5 years of schooling. This statistic
declined to 7.7 years for the 19751980
flow. If immigrants were randomly
drawn from the source countrys population and if the rate of return to schooling
is on the order of 7 percent, the declining educational attainment of the typical
source country would alone be responsible for a 14 percent decline in relative
wages across immigrant cohorts.
There is also a great deal of variation
in other types of work-related skills
across the various source countries, and
these skills are not equally transferable
to the United States. Clearly, the kinds
of skills workers acquire in highly developed economies differ from those acquired in less-developed countries. It
seems likely that skills acquired in advanced economies are more easily transferable to the U.S. labor market. In fact,
there is a strong positive correlation between immigrant earnings in the United
States and the level of economic development in the country of origin, as measured by the countrys per capita GNP
(Guillermina Jasso and Mark Rosenzweig
1986).
There has been a dramatic drop in the
per capita income of the country represented by the typical immigrant entering
the United States (Borjas 1992b). The
average person who immigrated between
1955 and 1960 originated in a country
which had a 1980 per capita GNP of
1687
$6,823 (in 1980 dollars). By contrast, the

respective statistic for the typical immigrant who arrived in the late 1970s is
$3,828. Because the elasticity of the
earnings of immigrants in the United
States with respect to per capita GNP in
the source country is on the order of .04,
immigrants who arrived in the late 1950s
will earn about 4 percent more than
those who arrived in the late 1970s, even
if the immigrant flow were randomly selected from the source countries.
B. The Self-Selection of the Immigrant
Flow
The immigrant flow, however, is not
randomly selected from the population
of the source countries. Borjas (1987) argues that the self-selection of the immigrant flow generates some of the national
origin differentials documented in Table
8. Suppose that residents of country 0
(the source country) consider migrating
to country 1 (the host country). Assume
also that migration decisions are irreversible so that no return migration occurs. If they choose to remain in the
source country, residents of the source
country have an earnings distribution
given by:
log w0 = 0 + 0,
(6)
where w0 gives the workers earnings in

the source country; 0 is the mean log
earnings in the source country; and the
random variable 0 measures deviations
from mean earnings, and is assumed to
be normally distributed with mean zero
and variance 20.
If the entire population of the source
country were to migrate to the host
country, they would face the earnings
distribution:
log w1 = 1 + 1,
(7)
where 1 is the mean log earnings in

the host country, and the random vari-
1688
able 1 measures deviations from mean

earnings, and is normally distributed
with mean zero and variance 21. The correlation coefficient between the random
variables 0 and 1 equals .
The population mean 1 need not
equal the mean earnings of native workers in the host country. The average
worker in the source country, for instance, might be less skilled than the average worker in the United States. For
convenience, it is useful to assume that
the typical person in both countries is
equally skilled, so that 1 also gives the
mean earnings of natives in the host
country. This assumption helps isolate
the impact of the selection process on
the skill composition of the immigrant
flow.
Equations (6) and (7) summarize the
earnings opportunities available to potential migrants in the source and host
countries. The migration decision is determined by a comparison of earnings
opportunities across countries, net of migration costs (C). Define the index function:
w1 ( ) + ( ), (8)
1
0
1
0
w0 + C
where = C/w0 gives a time-equivalent
measure of migration costs. A worker
migrates to the host country if I > 0
and remains in the source country otherwise.
Migration costs C will differ among
workers. For instance, newly arrived immigrants may be unemployed while they
look for employment, suggesting that
high-wage migrants might have higher
migration costs. High-wage migrants,
however, are more likely to have prior
job connections and better information
about job opportunities, suggesting a
negative correlation between migration
costs C and wages. The immigrant also
incurs transportation costs. It is instructive to assume initially that the timeI = log
equivalent migration costs, , are constant in the population (so that migration
costs are proportional to wages). The
probability that a person migrates to the
host country can then be written as:
P = Pr{ > (0 + 1)} = 1 (z), (9)
where = 1 0, z = (0 + 1)/v,
and is the standard normal distribution function. It is easy to show that:
P
< 0,
P
P
> 0, and
< 0.
1
(10)
The emigration rate is negatively correlated with mean earnings in the source
country and with migration costs, and is
positively correlated with mean earnings
in the host country. Although most studies analyzing internal migration flows focus on the determinants of the size and
direction of migration flows, there are
other equally important questions which
can be analyzed in the context of the income maximization model. For instance,
which persons find it worthwhile to migrate to the host country?
This question is at the heart of Andrew
Roys (1951) well-known model of selfselection, which describes how workers
sort themselves among employment opportunities (Michael Sattinger 1993).
The implications of the income-maximization hypothesis for the selection of the
immigrant flow are easily grasped by
evaluating the conditional means E(log
w0 | I > 0), which gives the earnings of
immigrants prior to their migration, and
E(log w1 | I > 0), which gives immigrant
earnings in the host country. Because of
the normality assumption, these conditional means are given by: 17
17 To
derive equation (11), note that:

E(log w 0 I > 0) = 0 + 0 E( 0 v > z),
where 0 = 0/0, v = v/v. Because the conditional
expectation of a normal density is linear, we can write 0 =
0v v + , where 0v is the correlation between 0 and v,

E(log w0 I > 0)
01
0
= 0 +

,
v
1
(11)
E(log w1 I > 0)
01 1
, (12)
v 0
where = (z)/(1 (z)), and is the

= 1 +
density of the standard normal. The variable is inversely related to the emigration rate and is positive as long as some
persons find it profitable to remain in
the source country (P < 1).
Let Q0 = E(e 0 | I > 0) and Q1 = E(e 1 |
I > 0). Inspection of equations (11) and
(12) indicates that there are three possible types of selection characterizing the
immigrant flow:
Q0 > 0 and Q 1 > 0
if and only if >
> 1.
(13)
> 1.
(14)
1 0
if and only if < min , .
0 1
(15)
Q0 < 0 and Q1 < 0

if and only if >
1
1
and
and
0
0
1
Q0 < 0 and Q1 > 0
Equation (13) shows that immigrants

are positively selected (i.e., have aboveaverage earnings in both the source and
host countries) when the correlation between skills in the two countries is sufficiently high and when the host country
has more dispersion in its earnings distriand is independent of v*. The mean earnings of
immigrants in the source country are then given
by:
E(log w 0 I > 0) = 0 + 0 0v E(v v > z).

Equation (11) follows directly by noting that
0 v = ( 0 1 20 )/ 0 v and = E(v v > z). Equation (12) can be derived in an analogous manner. It is
worth noting that the random variables 0 and 1 can be
decomposed into observable and unobservable components so that the framework applies to selection in both
types of skill characteristics.
1689
bution. The strong positive correlation

between earnings in the source and host
countries ensures that skills are portable
across countries. The immigrant population is then drawn from the upper tail of
the earnings distribution because the
source country, in a sense, taxes highability workers and insures less able
workers against poor labor market outcomes.
Equation (14) indicates that immigrants are negatively selected (i.e., have
below-average earnings in both the
source and host countries) when the correlation coefficient is sufficiently high
and when the earnings distribution in
the source country has a larger variance
than the earnings distribution in the host
country. The immigration flow is negatively selected, therefore, when the host
country taxes high-income workers and
provides better insurance for low-income
workers.
Finally, equation (15) describes the
characteristics of a refugee sorting,
where immigrants have below-average
earnings in the source country but end
up in the upper tail of the earnings distribution of the host country. This sorting occurs when is small or negative.
The correlation might be negative after
a source country experiences a Communist takeover. This political system (at
least in its initial stages) redistributes incomes by confiscating the assets of relatively successful persons. The model suggests that immigrants from such systems
will be in the lower tail of the revolutionary earnings distribution, but will
perform well in the host countrys market economy.
Note that the type of selection characterizing the immigrant flow depends on
the second moments of the earnings distributions. Put differently, because the
underlying distribution of skills is being
held constant, the variance of the earnings distribution proxies for the price of
1690
skills, and thus serves an allocative role

in the sorting of persons across countries. It is worth noting that neither the
difference in mean earnings nor the level
of migration costs determines the type of
selection that characterizes the immigrant flow. 18 Although the first moments
determine the size and direction of the
flow, they do not determine if immigrants are drawn mainly from the upper
or lower tails of the earnings distribution.
The empirical evidence provides some
support for the equilibrium skill sorting
implied by the model. Borjas (1990, ch.
7) reports that measures of income inequality in the source country, which are
a rough proxy for the rate of return to
skills, are negatively correlated with the
earnings of immigrant men in the United
States. 19 Holding constant a vector of observable socioeconomic characteristics
(including educational attainment and
age), the point estimates suggest that
Mexican immigrant men earn about 4
percent less than British immigrants
simply because of the selectivity effect
resulting from Mexico having a higher
rate of return to skills than the United
18 Although the discussion assumed that migration costs (in time-equivalent terms) are constant,
it is not difficult to incorporate liquidity constraints or variable migration costs into the model.
For instance, economic conditions might motivate
the least-skilled to migrate, but liquidity constraints prevent the migration of these workers.
The best of the worst will then move if the flow
is negatively selected. Similarly, if migration costs
are correlated with earnings, the selection characterizing the immigrant flow may change in either
direction. If, for example, migration costs are positively correlated with earnings, the immigrant flow
is more likely to be negatively selected. It is easy
to show that the correlation between migration
costs and earnings can change the type of selection only if the variance in migration costs is sufficiently high relative to the variance in skills.
19 Alan Barrett (1993) shows that immigrants
who enter the United States using a family reunification visa have relatively lower earnings when
they originate in countries where the income distribution has a large variance.
Kingdom. Deborah Cobb-Clark (1993)

finds a similar negative correlation between the earnings of immigrant women
in the United States and measures of the
rate of return to schooling in the source
countries. Finally, Edward Taylors
(1987) case study of migration in a rural
Mexican village concludes that Mexicans
who migrated illegally to the United
States are less skilled, on average, than
the typical person residing in the village.
This type of selection is consistent with
the fact that Mexico has a relatively high
rate of return to skills.
The discussion provides an interesting
explanation of the decline in the relative
skills of immigrant cohorts admitted to
the United States in the postwar era.
Prior to the 1965 Amendments, the allocation of visas was guided by the ethnic
composition of the U.S. population in
1920, and thus favored immigration from
a small number of Western European
countries. The 1965 Amendments repealed the national-origins quota system
and greatly increased the number of immigrants originating in Asian and Latin
American countries. The new immigration, therefore, is more likely to originate in countries where the population
tends to be less skilled, where skills are
less easily transferable to the United
States, and where the rate of return to
skills is relatively high. All these factors
contribute to a decline in the relative
skills of successive immigrant waves. 20
The self-selection model can be ex20 Part of the national origin wage differentials
may also arise from discrimination against particular groups. The literature has not investigated this
hypothesis seriously because the evidence on the
Hispanic/non-Hispanic or the Asian/white wage
differential among native workers does not lend
itself to a simple discrimination interpretation.
Cordelia Reimers (1983) finds that much of the
Hispanic/non-Hispanic wage differential is attributable to differences in observable characteristics,
while Chiswick (1983) shows that Asian groups actually have higher wages than white workers, even
after controlling for observable characteristics.

tended to incorporate the fact that migration decisions are reversible. Return
migration can arise for two distinct reasons. First, it may be the optimal residential location plan over the life cycle.
In other words, workers reside in the
host country for a few years and then return to their home countries after accumulating sufficiently large levels of human capital or wealth. This mobility
pattern allows some workers to attain
higher utility or wealth than if the migration decision was permanent. Alternatively, return migration flows may result
from mistakes in the initial migration decision.21 Potential immigrants are uncertain about the economic conditions available to them in the destination. As a
result, the actual outcomes experienced
in the host countrys labor market differ
from the expected outcomes that guided
the immigration decision. As long as return migration costs are relatively low,
immigrants who experience worse-thanexpected outcomes will return to their
home country.
Borjas and Bernt Bratsberg (forthcoming) argue that regardless of which of
these two factors generates return migration, the implications for the skill composition of the surviving immigrant
stock are the same: return migration accentuates the selection that characterizes
the initial migration flow. The intuition
is illustrated in Figure 3 for the special
case where earnings are perfectly correlated across countries.22 Suppose that
21 Eliakim Katz and Oded Stark (1987) present
a model of how the immigrant flow is selected
based on the assumption that there is asymmetric
information in the migration decision (workers
know their skills and earnings in the source country, but not in the host country).
22 The assumption that earnings are perfectly
correlated across countries implies that we can
write the wage structure for country i (i = 0,1) as
log wi = i + hi s, where s is a random variable
describing a workers skills; and hi is the rate of
return to skills. Ignoring migration costs, a resident of the source country migrates when 1 +
Negatively-Selected
Immigrant Flow
nL
1691
Positively-Selected
Immigrant Flow
nH
Skills
Figure 3. The Self-selection of Return Migrants
the immigrant flow is positively selected

so that all workers with skill level exceeding vH emigrate. The worker with
skill level vH is the marginal immigrant; he is indifferent between migrating and not migrating. As a result, the
immigrants with skill level in the neighborhood of vH are most susceptible to
improved opportunities in the source
country or to adverse random shocks in
the host countrys labor market. The return migrants are the worst of the best.
If the return migration flow is negatively
selected, the immigrants have skills below vL. The persons in the neighborhood
of vL are the marginal immigrants, and
the return migrants are the best of the
worst.
The limited empirical evidence supports these theoretical implications. Fernando Ramos (1992) analyzes the return
migration decisions of Puerto Ricans living in the United States. The joint study
of the Puerto Rican and U.S. Censuses
provides valuable information on the
characteristics of Puerto Ricans living in
the United States, of Puerto Ricans who
remained in their homeland, and of
Puerto Ricans who returned to Puerto
Rico after living in the United States for
a brief period. The data indicate that
Puerto Rican immigrants in the United
States are relatively unskilled, but that
h 1s > 0 + h0s. We can rewrite this decision rule as
(h1 h0) s > (0 1). Thus, there exists a threshold level of skills that separates out the migrants
from the nonmigrants. Note that this result does
not depend on the distribution of the random variable s.
1692
the return migrants are relatively more

skilled than the typical immigrant. The
typical Puerto Rican who migrated to the
United States prior to 1975 had 9.4 years
of schooling, as compared to 10.8 years
for a Puerto Rican who never left Puerto
Rico. The Puerto Rican migration flow,
therefore, is negatively selected. In contrast, the typical Puerto Rican who returned to Puerto Rico after a stint in the
United States had 9.8 years of schooling.
Borjas and Bratsberg (forthcoming)
find a relationship between the rate of
return migration for a particular national
origin group and the average earnings of
the surviving stock of immigrants in the
United States. In particular, a high rate
of return migration for the national origin group increases the average earnings
of the surviving immigrants when the immigrant flow is positively selected (i.e.,
originates in a country with a low rate of
return to skills), and reduces the average
earnings of the surviving stock when the
immigrant flow is negatively selected
(i.e., originates in a country with a high
rate of return to skills). Even though the
return migration rates in the BorjasBratsberg study are measured with a
great deal of error, the empirical evidence suggests that return migration
does accentuate the selection of immigrants at either tail of the skill distribution. Bratsberg (1993) shows that the return migration rate of foreign students in
the United States differs substantially
across source countries. For example,
only about 3 percent of students originating in Mexico or Germany choose to
remain in the United States, as opposed
to nearly 30 percent of students originating in Israel, Poland, and Kenya. The
data indicate that foreign students are
more likely to return to wealthier countries and to countries which offer high
rates of return to schooling.
Roys framework has also been expanded to incorporate the idea that im-
migration decisions are made in a family

context (Cobb-Clark 1990; Borjas and
Stephen Bronars 1991). The maximization of family income implies that the
immigrant flow contains some tied movers, persons who would not have migrated on their own but who migrate as
part of the household. This approach will
likely play a crucial role in understanding skill trends among immigrant
women, both in terms of cohort effects
and wage convergence. The early work
of James Long (1980), based on the 1970
Census cross-section, suggests that the
labor market experiences of immigrant
women in the United States differ substantially from those of men. For example, the earnings of immigrant women
are negatively correlated with yearssince-migration. Remarkably, there has
been little empirical research documenting the skill trends among immigrant
women since that early study.
C. The Host Countrys Demand for
Immigrants
Even though Roys self-selection
model has influenced our thinking about
how the immigrant flow is chosen from
the source countrys population, it is important to stress that the model only
gives the supply side of the immigration market. Workers who wish to migrate to a particular host country can do
so only if the host countrys government
allows it. The immigration market is
highly regulated. Most countries have
strict policies describing the demographic characteristics of persons who
are allowed to enter the country (such as
skills, national origin, or family ties with
current residents). The size and skill
composition of the immigrant flow,
therefore, are jointly determined by the
supply-side considerations stressed in
the self-selection model as well as by factors which influence the host countrys

demand for immigrants (or, equivalently,
the supply of visas).
In general, the supply of visas is determined by the host countrys political and
economic gains from immigration. For
instance, the returns to immigration will
depend partly on the benefits accruing
from admitting workers who can specialize in particular industries and occupations, and will also be determined by the
impact of immigrant flows on the employment opportunities of natives as well
as on the social fabric of the host country. It is also clear that there will be differential benefits from admitting skilled
or unskilled immigrant flows, depending
on the skill composition of the native
work force and on the generosity of social insurance programs.
Unfortunately, the literature does not
yet provide a systematic analysis of the
factors that generate the host countrys
demand function for immigrants. Recent
work by Jess Benhabib (1993) constructs
a demand curve by noting that natives
differ in their wealth, so that there will
be both winners and losers from the
choice of a particular immigration policy.
The demand function for immigrants is
then an exercise in political economy,
and depends on the extent to which the
winners can compensate the losers. Richard Freeman (1993) conjectures that the
demand curve for immigrants might be
mostly determined by discrimination
against some national origin groups.
A promising exploration of the factors
that shift the U.S. demand for immigrants is given by Claudia Goldins
(1994) study of the origins of the national-origins quota system. In 1915,
Congress enacted legislation requiring
immigrants to pass a literacy test, effectively reducing the demand for unskilled
immigrants. President Woodrow Wilson
vetoed the legislation. Legislators representing districts with large immigrant
populations voted not to override Wil-
1693
sons veto (suggesting that their immigrant constituents did not support a restrictionist policy towards unskilled
workers). 23 In contrast, legislators representing districts where wages were stagnant voted to override the veto (implying
that their constituents had little to gain,
and perhaps much to lose, from admitting more immigrants). Therefore, it
seems as if further research on the political economy of immigration policy might
greatly improve our understanding of the
properties of equilibrium in the immigration market.
5. International Differences in
Immigrant Performance
The performance of immigrants in the
host countrys labor market has been
documented in a number of other countries, including Australia (John Beggs
and Bruce Chapman 1991); Britain
(Chiswick 1980); Germany (Christian
Dustmann 1993; Jrn-Steffen Pischke
1993); and Israel (Friedberg 1993).
These international comparisons help assess the impact of differences in immigration policy. The most extensive research has been conducted on the
immigrant experience in Canada, which
by the early 1990s had an annual immigrant flow on the order of one percent of
its population (Michael Baker and
Dwayne
Benjamin
1994;
Bloom,
Grenier, and Morley Gunderson forthcoming; and Robert Wright and Paul
Maxim 1993).
Until 1961, Canadian immigration policy, like that of the United States, permitted the entry of persons originating in
only a few countries, such as the United
23 Lindsay Lowell, Frank Bean, and Rodolfo De
La Garza (1986) report that Congressmen representing districts with large Hispanic populations
were more likely to oppose enactment of an early
version of the 1986 Immigration Reform and Control Act (which made it illegal for employers to
hire illegal aliens).
1694

TABLE 9
EDUCATIONAL ATTAINMENT AND WAGES OF IMMIGRANTS IN CANADA AND THE UNITED STATES
Host Country
Cohort/Census Year
Educational Attainment:
196064 Cohort as of 1970
Natives as of 1970
Natives as of 1980
Percentage Wage Differential Between Immigrants
and Natives in Host Country:
Canada
United States
10.5
12.6
9.9
11.3
10.9
11.8
11.5
12.7
.8
15.8
4.4
27.6
Source: Borjas (1993b, p. 28). The statistics are calculated in the subsample of men aged 2564 who work in the
civilian sector, who are not self-employed, and who do not reside in group quarters. The Canadian data are drawn
from the 1971 and 1981 Public Use Samples of the Canadian Census, while the U.S. data are drawn from the 1970
and 1980 Public Use Samples of the U.S. Census.
Kingdom, or of persons who were dependents of Canadian residents. Major

policy changes in 1962 and 1967 repealed the national origin restrictions,
and shifted the emphasis towards skills
requirements. Under current regulations, applicants for entry into Canada
are classified into three classes: the family class (which includes close relatives of
Canadian residents), assisted relatives
(which includes more distant relatives of
Canadian residents), and independent
immigrants. Visa applicants in the last
two classes are screened by means of a
point system. Points are awarded according to such factors as the applicants
education, age, and occupation. Applicants who get a passing score are
awarded an entry visa.
As Table 9 shows, the point system
seems to have had a major impact on the
skill level of immigrants in Canada. In
the early 1960s, the typical immigrant
entering Canada had about half-a-year
less schooling than the typical immigrant
entering the United States. By the late
1970s, the typical immigrant entering
Canada had almost one more year of
schooling than the typical immigrant entering the United States. In addition, the
typical immigrant entering Canada in the
late 1970s earned 16 percent less than
Canadian-born workers, while the typical
immigrant entering the United States
earned about 28 percent less than U.S.born workers.24
A number of recent studies attempt to
determine why Canada attracts relatively more skilled immigrants than the
United States. Surprisingly, there is little
difference in average skills between immigrants in Canada and in the United
States for given national origin groups
(Borjas 1993b; Duleep and Regets
1992a). In other words, the typical Italian immigrant in Canada has about as
much schooling and does about as well in
24 The evidence also indicates that Canada experienced a decline in relative wages across successive immigrant waves, although not as steep as
the decline observed in the United States. Wright
and Maxim (1993) suggest that the Canadian decline occurred both because of a change in the
national origin mix of immigrants and because of a
decrease in the share of independent class immigrants (so that the point system became less relevant over time).

the labor market as the typical Italian
immigrant in the United States. The national origin mix of immigrants in Canada and the United States, however, differs substantially, with a larger fraction
of the Canadian immigrant flow originating in European countries. During the
1980s, 27 percent of the immigrant flow
entering Canada originated in Europe, as
compared to only 10.4 percent for the
United States. Therefore, part of the difference between the average skill level
of immigrants in Canada and the United
States is attributable to the different national origin mix of immigrants in the
two host countries.
This finding raises important questions
about how a Canadian-style point system
works. It would be a mistake to claim
that the point system is ineffective because it seems to have little impact on
the education level or relative wages of
specific national origin groups. An alternative, though little discussed, effect of
the point system is to reallocate visas
across source countries. Consider, for instance, the implications of how education is rewarded in the point system. In
the late 1960s, a visa applicant was given
1 point per year of education, and only
50 out of 100 points were needed to
pass the test. Persons originating in
countries that have a high level of educational attainment are more likely to qualify for entry than persons originating in
countries where the typical person has
little schooling. It is likely, therefore,
that the point system plays an important
role in determining the national origin
mix of the immigrant flow. 25
25 Allan Green and David Green (1994) argue
that the point system affects the skill level of immigrants because it influences the occupational
distribution of the immigrant flow, with occupations that are in demand being much more represented in the immigrant flow. The point system
thus alters the national origin mix because workers
originating in countries where the occupational
1695
The experience of immigrants in Canada differs from the experience of their

U.S. counterparts in one other notable
way. Baker and Benjamin (1994) document that over a 10 year period, the relative wage of immigrants in Canada might
increase by at most 3 percentage points,
less than half of the wage growth experienced by immigrants in the United
States. This finding suggests that a fruitful avenue for future research might be
to investigate why the adjustment process of immigrants differs across host
countries.
As noted above, a number of studies
analyze immigrant labor market performance in other host countries. There is a
great deal of diversity in the results of
these studies, but the evidence generally
suggests that countries which have skill
filters attract a relatively more skilled
immigrant flow. Australia, for example,
has a point system similar to the Canadian one. Beggs and Chapman (1991) report that immigrants in Australia have
high relative wages. In contrast, Pischke
(1993) finds that immigrants in Germany
(who for the most part were Turkish
guest workers admitted in the 1960s)
have lower wages than native Germans
and do not experience any wage convergence over the life cycle.
6. The Impact of Immigrants on Native
Earnings and Employment
Do immigrants have an adverse impact
on native earnings and employment opportunities? If so, how large is the loss in
the economic welfare of native workers?
Are all native groups equally affected by
the entry of immigrants into the labor
market? A rapidly growing literature now
purports to document the impact of immigrants on the native labor market in a
distribution is more compatible with the one desired by Canada have a larger probability of obtaining a visa.
1696
number of host countries. As we will see

below, however, a number of conceptual
problems plague this literature. As a result, the accumulated empirical evidence
has little to say about the underlying
questions.
To understand the impact of immigration on native employment opportunities, suppose we view a labor market as a
closed economy where a single competitive industry uses a linear homogeneous
production function to produce Q units
of a good (Joseph Altonji and David Card
1991). The production process uses both
skilled and unskilled workers. The wage
rates of skilled and unskilled workers are
ws and wu, respectively. The cost function in this industry is then given by
Qc(ws, wu), where c(ws, wu) is the unit
cost function. Perfect competition implies that the price of the output, p,
equals the unit cost of production, so
that p = c(ws, wu).
Both skilled and unskilled workers
purchase the good. Each type-i worker
(i = s, u) has an output demand function
given by Di(wi, p). There are Ns skilled
workers and Nu unskilled workers, and
the fraction of unskilled workers in the
population is b. Product market equilibrium requires:
Q = Ns Ds (ws, p) + Nu Du (wu , p).
(16)
To close the model, suppose the labor

supply function of each type-i worker is
L i(wi, p). Labor market equilibrium implies:
Ns Ls (ws, p) = Q cs(ws,wu)
(17)
Nu Lu (wu, p) = Q cu (ws,wu),
(18)
where c i = ]c/]wi.
Consider now what would happen if
N immigrants enter the labor market
exogenously. Suppose that the fraction of
unskilled workers in the immigrant flow
equals . Under some simplifying conditions, Altonji and Card (1991, pp. 204
05) show that the resulting change in the

wage of skilled and unskilled workers is
given by: 26
log ws =
b N
s s b(1 b) N
= s
log wu =
b N
u u b(1 b) N
1
, (19)
= u
N
, (20)
N
where = Nu Du (wu, p)/Q; i $ 0 is the labor supply elasticity of type-i workers;

and i < 0 is the labor demand elasticity
for type-i workers.
Equations (19) and (20) give the reduced-form impact of immigration on
the skilled and unskilled wage. Suppose
that the fraction of unskilled workers in
the immigrant flow () equals the fraction of unskilled workers in the native
population (b). The linear homogeneity
of the production function then implies
that neither the skilled nor the unskilled
wage changes as a result of immigration.
Alternatively, if the fraction of unskilled
workers in the immigrant flow exceeds
the respective fraction among natives
( > b), immigration increases the skilled
wage and decreases the unskilled wage.
This conceptual experiment, therefore, indicates precisely how the impact
of immigration on native employment
opportunities can be measured. If we
could observe a number of closed labor
markets which immigrants penetrate randomly, we can then relate the change in
the wage of skilled and unskilled workers
26 To derive these equations, differentiate the
labor market equilibrium conditions, the product
market equilibrium condition, and the zero profit
condition, assuming that ]D i/]wi = 0, ]L i/]p = 0,
and that the cross-elasticities of factor demand are
zero, so that the demand for skilled (unskilled)
workers is independent of the unskilled (skilled)
wage.
1697
TABLE 10
ELASTICITY OF NATIVE WAGES WITH RESPECT TO THE NUMBER OF IMMIGRANTS IN LOCALITY
Study
Impact of
Immigrants on:
Dependent Variable
Elasticity
Estimate
Altonji and Card (1991,

p. 220)
Less Skilled Natives
Weekly wages
Bean, Lowell, and

Taylor (1988, p. 44)
Native Mexican Men

Black Men
Annual earnings
Annual earnings
Borjas (1990, p. 87)
White Native Men

Black Native Men
All Natives
Annual earnings
Annual earnings
Factor share of native
workers
.02
Young Black Natives

Young Hispanic Natives
Annual earnings
Annual earnings
.06
.01
Grossman (1982,
p. 600)
LaLonde and Topel
(1991, p. 186)
to the proportion of immigrants in the

population (after adjusting for the skill
composition of both the native population and the immigrant flow). The estimated parameters would summarize the
impact of immigrants on native employment opportunities.
Practically all empirical studies in the
literature, beginning with Jean Grossman
(1982), attempt to replicate this experiment by treating a city or metropolitan
area as the empirical counterpart of the
closed labor market in the theoretical
analysis. The typical study then regresses
a measure of the native wage in the locality on the relative quantity of immigrants in that locality (or the change in
the wage in the locality over a specified
time period on the change in the number
of immigrants in the locality). Equations
(19) and (20) show that the impact of immigration will also depend on the skill
distribution of immigrants relative to
that of natives. The empirical studies,
however, typically ignore the skill differentials that exist in both the native and
immigrant populations across metropolitan areas, and simply calculate the correlation between the immigrant share and
the native wage.
+.01
.005 to + .05
.003 to + .06
-.01
.02
Table 10 summarizes the results of

representative studies in this literature.
The across-city correlations in the
United States generally indicate that the
average native wage is slightly lower in
labor markets where immigrants tend to
reside. 27 The point estimates of the elasticity of the native wage with respect to
the number of immigrants cluster
around .01 to .02, so that if one city
has 10 percent more immigrants than another, the native wage in the city with
more immigrants is only about .2 percent
lower. The evidence also indicates that
the numerically weak relationship between native wages and immigration is
observed across all types of native workers, white or black, skilled or unskilled,
male or female. 28 In terms of the pa27 Many of these studies also find a significant
negative correlation between immigration and the
immigrant wage. For instance, Grossman (1982)
reports that a 10 percent increase in the number
of immigrants reduces the immigrant wage by 2
percent, while Altonji and Card (1991) conclude
that a 10 percent increase in the number of immigrants reduces the immigrant wage by at least 4
percent.
28 An exception to this result is given by Altonji
and Card (1991), who relate the wage change experienced by natives in a particular metropolitan
area between 1970 and 1980 to the change in the
1698
TABLE 11
ELASTICITY OF NATIVE EMPLOYMENT WITH RESPECT TO THE NUMBER OF IMMIGRANTS IN LOCALITY
Study
Impact of
Immigrants on:
Dependent Variable/Remarks
Elasticity
Estimate
Altonji and
Card (1991, p. 220)
Less Skilled Natives
Employment-population ratio
Weeks worked
.038
.062
Borjas (1990, p. 92)
White Native Men

Black Native Men
Labor force participation rate

Labor force participation rate
-.01
+.04
Black Natives
Unemployment rate
.01
Julian Simon, Stephen

Moore, and Richard
Sullivan (1993)
Natives
Unemployment rate
+.001
C. Winegarden and Lay

Khor (1991, p. 109)
Young White Natives

Young Black Natives
Unemployment rate
Unemployment rate
.01
.003
Thomas Muller and

Thomas Espenshade
(1985, p. 100)
rameters of equations (19) and (20),

therefore, the literature concludes that
s u .02.
Though most of the studies focus on
the relationship between native earnings
and the immigrant share in the local labor market, some studies also estimate
the correlation between immigration and
native labor force participation rates,
hours worked, and unemployment rates.
Table 11 summarizes representative results in the literature. It is evident that
immigration has a weak effect on the employment of natives.
Studies of specific labor markets confirm the finding that immigration seems
to have little impact even when the market receives very large immigrant flows.
On April 20, 1980, Fidel Castro declared
that Cuban nationals wishing to move to
share of immigrant workers in that locality. When
they instrument the change in the localitys immigrant share with a second-order polynomial in the
fraction of the work force that was foreign-born in
1970, the estimated elasticity is .8. It is doubtful,
however, that the immigrant share in 1970 is a
valid instrument for the growth in the immigrant
share.
the United States could leave freely from

the port of Mariel. By September 1980,
about 125,000 Cubans, mostly unskilled
workers, had chosen to undertake the
journey. Almost overnight, Miamis labor
force had unexpectedly grown by 7 percent. Cards (1990) influential analysis of
the data indicates that the time-series
trend in wages and employment opportunities for Miamis workers, including its
black population, was barely nudged by
the Mariel flow. The trend in the wage
and unemployment rates of Miamis
workers between 1980 and 1985 was
similar to that experienced by workers in
such cities as Los Angeles, Houston, and
Atlanta, cities which did not experience
the Mariel flow.
In short, the estimated correlations
between native wages and the immigrant
share in local labor markets do not support the hypothesis that the employment
opportunities of U.S.-born workers are
strongly and adversely affected by immigration. Moreover, the evidence for
other host countries is similar. Pischke
and Johannes Vellings (1994) study of
the German labor market relies on the

same across-city comparisons that dominate the U.S. literature, and finds a weak
negative correlation between the native
wage and the fraction of immigrants in
the work force; and Jennifer Hunt (1992)
reports that, even though 900,000 persons returned to France within one year
after the 1962 independence of Algeria
(increasing the French labor force by 2
percent), there was little impact on the
affected localities.29
The correlations estimated in this extensive literature, however, misspecify
the theoretical experiment described
earlier and hence do not answer the
question of whether native workers are
adversely affected by immigration. In
particular, the comparison of economic
conditions in different metropolitan areas, as well as the pre- and post-immigration comparison in a particular metropolitan area, presumes that the labor
markets are closed (once immigration
takes place) and that the migration flow
is exogenous.
Metropolitan areas in the United
States (and abroad) are not closed economies; labor, capital, and goods flow
freely across localities and tend to equalize factor prices in the process. As long
as native workers and firms respond to
the entry of immigrants by moving to areas offering better opportunities, there is
no reason to expect a correlation between the wage of natives and the presence of immigrants. As a result, the comparison of local labor markets may be
masking the macro effect of immigration. Moreover, immigrants do not simply land in a randomly chosen metropolitan area; presumably they choose areas
29 William Carrington and Pedro de Lima
(1994) report inconclusive results when they analyze the impact of the 600,000 refugees who entered Portugal after the country lost the African
colonies of Mozambique and Angola in the mid1970s, increasing Portugals population by almost
7 percent.
1699
which provide them the best opportunities. Therefore, the correlations typically
estimated in the literature have no structural interpretation; they do not estimate
the demand function for native workers,
nor do they estimate the reduced-form
impact of immigrants on native employment opportunities. 30
A recent study of time-series data
drawn from the CPS by Borjas, Freeman, and L. Katz (1992) provides indirect evidence of the macro impact of immigration. As noted earlier, the 1980s
witnessed a substantial increase in the
wage gap between workers who do not
have a high school diploma and workers
with more education. The decade also
witnessed the entry of large numbers of
less skilled immigrants. Given reasonable
estimates of labor demand elasticities,
Borjas, Freeman, and L. Katz conclude
that perhaps a third of the 10 percentage
point decline in the relative wage of high
school dropouts between 1980 and 1988
can be attributed to the less skilled immigration flow.31
To reconcile the finding that local labor markets do not seem to be affected
by immigration with the possible existence of an economy-wide impact, Ran30 Some studies use the industry, rather than
the local labor market, as the unit of observation
and analyze native employment and wages as immigrants penetrate a particular industry (Thomas
Bailey 1987; John DeNew and Klaus Zimmermann
1994; Roger Waldinger 1993). The correlations are
sometimes interpreted in terms of a displacement
effect. As with studies of local labor markets, these
correlations have no structural interpretation as
long as workers and firms can move across industries.
31 Using CPS data, Topel (1994) also finds that
the relative decline in the wage of less skilled
workers during the 1980s was steepest in labor
markets which had a sizable immigrant presence.
It is important to stress, however, that the CPS
data do not identify persons by nativity status, so
that the decline in the relative wage of unskilled
workers could be attributable to the fact that the
unskilled wage fell because the new immigrants
earn even lower wages than the unskilled native
population.
1700
dall Filer (1992) and Michael White and

Lori Hunter (1993) analyze how the internal migration flows of U.S.-born
workers respond to immigration. Using
1980 Census data, they find that metropolitan areas where immigrants cluster
experienced lower rates of native in-migration and somewhat higher rates of natives out-migration. This pattern of native mobility, of course, dissipates the
impact of immigration over the entire
economy. The evidence for more recent
time periods, however, seems to be
mixed. Using various CPS supplements
from the 1980s, Butcher and Card (1991)
and White and Zai Liang (1993) estimate
a positive correlation between immigration flows and the in-migration rates of
natives to particular cities, while William
Freys (1994) study of the 1990 Census
reveals that less skilled native workers
residing in states which received large
immigrant flows in the late 1980s had
relatively high probabilities of out-migration.
Although native workers and firms
probably vote with their feet and attenuate the negative or positive impact
of immigration on local labor markets,
this argument does not fully explain why
immigration has little impact on local labor markets. Cards Mariel study, in
particular, raises a number of puzzling
questions. The Marielitos had no impact on Miamis labor market even in
the year when the large migration took
place. As a result, the internal flows of
labor, capital, and goods can explain the
apparent lack of correlation between native earnings and the presence of immigrants only if markets adjust instantaneously.
There exists a great deal of regional
variation in many labor market characteristics and these differences are often
viewed as the result of equilibrium processes that are specific to the locality and
that do not disappear quickly. Olivier
Blanchard and L. Katzs (1992) empirical

study of regional labor market adjustments in the United States is quite instructive. They find that a one-time adverse economic shock to a state (on the
order of a 1 percent demand shock on
employment) reduces the states real
wage for up to 10 years before the internal migration of workers reequilibrates
the wage across regions. The unresolved
puzzle facing those who interpret the
lack of correlation between immigration
and native wages in the local labor market in terms of an economy-wide equilibrium process is clear: Why should it be
that many other regional variations persist over time, but that the impact of immigration on native workers is arbitraged
away immediately?
A fair appraisal of the literature thus
suggests that we still do not fully understand how immigrants affect the employment opportunities of natives in local labor markets; nor do we understand the
dynamic process through which natives
respond to these supply shocks and reestablish labor market equilibrium.
7. Immigration and Welfare
Historically, the debate over immigration policy in the United States has revolved around the questions of whether
immigrants assimilate in the United
States and whether they take jobs away
from natives. The rapid growth of entitlement programs in the past three decades introduces an additional explosive
question into the political arena: Do immigrants pay their way in the welfare
state?
A. Trends in Immigrant Welfare
Participation
The early work of Blau (1984) used the
1976 Survey of Income and Education to
assess if immigrants and natives had the
same propensity for receiving public as-

TABLE 12
WELFARE PARTICIPATION RATES OF NATIVE AND
IMMIGRANT HOUSEHOLDS, 19701990
(Percentage of Households Receiving Public
Assistance)
All Households
Group
1970
1980
1990
Natives
All Immigrants
6.0
5.9
7.9
8.7
7.4
9.1
Cohort:
19851989 Arrivals
19801984 Arrivals
19751979 Arrivals
19701974 Arrivals
19651969 Arrivals
19601964 Arrivals
19501959 Arrivals
Pre-1950 Arrivals
5.5
6.5
4.9
6.2
8.3
8.4
10.1
9.2
7.1
9.3
8.3
10.7
10.0
9.7
9.8
8.4
6.7
8.1

1990 Public Use Samples of the U.S. Census. The statistics are calculated in the subsample of households
where the household head is at least 18 years of age
and does not reside in group quarters.
sistance (see also Leif Jensen 1988). Blau

concluded that immigrant households
had roughly the same probability of participating in public assistance programs
as native households, but that immigrants had lower participation rates
when compared to natives who had the
same socioeconomic characteristics (such
as household composition and educational attainment of the household
head).
As with the early studies analyzing the
evolution of immigrant earnings, these
findings were based on studies of crosssection data sets. Beginning with Borjas
and Trejo (1991), recent work analyzes
the trends in immigrant welfare participation using synthetic cohorts created by
pooling Census cross-sections. The results of this type of research are summarized in Table 12, which uses the 1970,
1980, and 1990 U.S. Censuses to docu-
1701
ment how immigrant participation in

cash-benefit welfare programs changed
over the past twenty years.32 Immigrants
were slightly less likely than natives to
receive cash benefits in 1970. By 1990,
the fraction of immigrant households
on welfare was 1.7 percentage points
higher than the fraction of native households.
Two distinct factors account for the
disproportionate increase in welfare participation among immigrant households.
Recent immigrant waves are more likely
to use welfare than earlier waves, both
relative to natives and in absolute terms.
In 1970, only 5.5 percent of the most recent immigrant households (i.e., households that have been in the United
States fewer than five years) received
welfare as compared to 6.0 percent for
native households. By 1990, 8.3 percent
of the newly arrived immigrant households received public assistance as compared to 7.4 percent of native households. There are, therefore, significant
cohort effects in welfare participation
rates among immigrants.
In addition, the welfare participation
rate for a specific immigrant wave increases over time. Even though only 5.5
percent of the households that migrated
between 1965 and 1969 received public
assistance in 1970, the welfare participation rate of this group increased to about
10 percent in both 1980 and 1990. Immigrant households, therefore, assimilate
32 The Census data report participation only in
cash benefits programs, such as Aid to Families
with Dependent Children (AFDC) and Supplemental Security Income (SSI). The data do not
contain any information on participation in noncash programs such as Food Stamps and Medicaid.
The statistics are calculated using a 1/1000 random sample of native households in each of the
Censuses and a 5/100 random sample of immigrant households (except in 1970 when the immigrant extract forms a 2/100 random sample, and in
1990 when the native extract forms a 5/1000 random sample). The resulting data set contains
1,296,699 observations.
1702
into welfare.33 This perverse pattern of

adaptation might arise because newly arrived immigrants fear that they jeopardize their chances for naturalization if
they receive public assistance, or because immigrants learn about welfare
programs the longer they reside in the
United States.34
Not surprisingly, there are huge differences in welfare participation propensities among national origin groups. Table
13 reports the welfare participation rates
for selected groups. Only about 2 to 4
percent of the households originating in
South Africa, Taiwan, or the United
Kingdom receive public assistance, as
opposed to 11 to 12 percent of the
households originating in Ecuador or
Mexico, and nearly 50 percent of the
households originating in Laos or Cambodia.
The statistics presented in Table 13
suggest a major structural shift between two types of national origin
groups. In particular, refugee groups
tend to exhibit much higher rates of
welfare participation than non-refugee
groups. As noted earlier, households
originating in Cambodia or Laos had a
welfare participation rate of near 50 percent; those originating in Vietnam have a
welfare participation rate of 25.8 percent; while those originating in Cuba or
the Soviet Union have a participation
rate of 16 percent. Moreover, the participation rate of refugee groups remains
high even after a decade in the United
33 Borjas and Trejo (1991) show that immigrant
households assimilate into welfare programs even
when particular age groups are tracked across
Censuses.
34 Even in 1990, the gap in welfare participation
rates between immigrants and natives can be attributed to differences in observable socioeconomic characteristics, such as educational attainment and household composition. In other words,
it is not immigrant-ness that generates high welfare participation rates in the immigrant population. Rather, it is the socioeconomic characteristics of the immigrant population.
States. Refugee groups that are typically

thought of as being economically successful, such as the pre-1980 Cubans
(who migrated prior to the Mariel flow),
have a welfare participation rate of over
15 percent in 1990.
The high propensity of refugee households to enter and stay in the welfare
system may be the result of government
policies which supposedly ease the transition of refugees into the United States.
Persons who enter the country as refugees have immediate access to a wide array of social services that neither other
legal immigrants nor natives qualify for.
The early introduction of refugees to
public assistance programs seems to have
a profound and long-term impact.
The Census data indicate that not only
are the recipiency rates of immigrant
households rising over time, but that the
dollar costs of immigrant welfare participation are also rising. Table 14 documents that the typical native household
on welfare received roughly $4,000 in
cash benefits (in 1989 dollars) in all
three Census years under study. In contrast, the typical immigrant household on
welfare received about $3,800 in 1970,
nearly $4,700 in 1980, and about $5,400
in 1990. There are sizable cohort effects
in the welfare income received by immigrant households. In 1970, households
who had just entered the country and
were on welfare received an average of
$3,800 in cash benefits. By 1990, the
newly arrived immigrant households on
welfare received an average of $6,400.
Unfortunately, few studies document
immigrant participation in public assistance programs for other host countries.
An important exception is the work of
Baker and Benjamin (1993), who find
that the typical immigrant in Canada had
a lower probability of participating in
welfare programs than the typical native.
In 1991, the typical native household in
Canada had a 9.4 percent welfare partici-
TABLE 13
WELFARE PARTICIPATION RATES IN 1990, BY NATIONAL ORIGIN GROUP
All
Immigrants
Pre-1980
Arrivals
Europe:
Austria
Czechoslovakia
France
Germany
Greece
Hungary
Italy
Poland
Portugal
U.S.S.R.
United Kingdom
Yugoslavia
4.3
4.9
4.8
4.1
5.5
5.1
5.4
5.7
7.1
16.3
3.7
5.3
4.5
4.9
5.9
4.2
5.6
5.1
5.6
5.9
7.6
10.1
4.1
5.7
Asia:
Cambodia
China
India
Iran
Japan
Korea
Laos
Lebanon
Philippines
Taiwan
Vietnam
48.8
10.4
3.4
7.5
2.3
8.1
46.3
7.3
9.8
3.3
25.8
24.4
11.1
4.2
4.1
3.7
8.6
34.1
8.8
10.5
4.2
15.9
North and South America:

Argentina
Canada
Colombia
Cuba
Dominican Republic
Ecuador
El Salvador
Guatemala
Haiti
Jamaica
Mexico
Nicaragua
Panama
Peru
4.8
4.8
7.5
16.0
27.9
11.9
7.3
8.7
9.1
7.5
11.3
7.8
9.0
5.9
5.7
5.1
8.9
15.3
29.9
13.8
10.2
11.4
9.7
8.7
12.8
11.8
8.7
7.8
Country of Birth
Africa:
Egypt
Ethiopia
Nigeria
South Africa
5.5
5.9
3.2
1.6
6.7
3.0
3.3
1.6
Australia
3.7
3.8
Source: Authors tabulations from the 1990 Public Use Sample of the U.S.
Census. The statistics are calculated in the subsample of households where
the household head is at least 18 years of age and does not reside in group
quarters.
1704
TABLE 14
MEAN WELFARE INCOME OF NATIVE AND
IMMIGRANT HOUSEHOLDS, 19701990
(Calculated in Subsample of Households Receiving
Public Assistance, 1989 dollars)
Group
1970
1980
1990
Natives
All Immigrants
3,837
3,806
4,248
4,662
4,017
5,363
Cohort:
19851989 Arrivals
19801984 Arrivals
19751979 Arrivals
19701974 Arrivals
19651969 Arrivals
19601964 Arrivals
19501959 Arrivals
Pre-1950 Arrivals
3,830
4,144
4,402
3,629
5,228
5,220
5,044
5,050
4,680
4,022
6,385
6,571
5,652
4,884
4,796
4,480
4,514
4,262

1990 Public Use Samples of the U.S. Census. The statistics are calculated in the subsample of households
where the household head is at least 18 years of age
and does not reside in group quarters.
pation rate, as compared to only 7.4 percent for the typical immigrant household
(Baker and Benjamin 1993, Table 1).
The lower propensities of immigrants in
Canada to enter the welfare system may
be the result of the screen filters which
hinder relatively unskilled immigrants
from entering Canada (although Baker
and Benjamin do not provide any direct
evidence to indicate that the point system reduces expenditures in welfare programs). 35
B. Do Immigrants Pay Their Way?
There has been a great deal of discussion in recent years about whether immigrants take more out of the social wel35 The evidence also indicates that immigrants
in Canada, like their counterparts in the United
States, assimilate into the welfare system. Over a
10-year period, the probability of participating in
public assistance programs for the typical immigrant in Canada rises by about 5 percentage points
(relative to natives).
fare system than they put in. Jeffrey

Passel and Rebecca Clark (1994), for example, conclude that immigrants pay $27
billion more in taxes than they take out
of the system, while Donald Huddle
(1993) claims that immigration increases
the native tax burden by about $40 billion annually.
As with all accounting exercises, these
studies make many disputable assumptions which effectively determine the answer to the question. There are, however, a few facts that are directly
relevant to the debate and that do not
depend on accounting assumptions. Table 15 summarizes the data for the 1970
1990 period. The first row of the table
reports the fraction of households in the
United States that have an immigrant
head. This fraction rose from 6.8 percent
in 1970 to 8.4 percent in 1990. Using
Census data it is easy to calculate the
fraction of immigrant households in the
population of welfare households (i.e.,
households that receive public assistance). In 1970, 6.7 percent of welfare
households had an immigrant head, so
that immigrants were slightly under-represented among welfare households. By
1990, the situation had changed dramatically: 10.4 percent of welfare households
had a foreign-born head, so that immigrants were substantially over-represented among welfare households.
The Census data also indicate that in
1970, a total of $14.6 billion in cash
benefits was distributed to households;
by 1980, this expenditure had risen to
$26.8 billion; and by 1990, to $28.6 billion (all in 1989 dollars). The third row
of Table 15 reports the fraction of welfare income that was distributed to foreign-born households. In 1970, 6.7 percent of cash benefits were distributed to
immigrant households, again indicating
that immigrant were slightly under-represented in the distribution of welfare
benefits. By 1990, the situation had
1705
TABLE 15
IMMIGRANT CONTRIBUTION TO WELFARE EXPENDITURES
1. Percentage of Households with

Immigrant Heads
2. Percentage of Households with Immigrant
Heads in Population of Households
Receiving Public Assistance
3. Percentage of Public Assistance Income
Distributed to Households with
Immigrant Heads
4. Percentage of NonWelfare Income
Received by Households with
Immigrant Heads
1970
1980
1990
6.8
7.6
8.4
6.7
8.3
10.1
6.7
9.1
13.1
6.3
7.0
8.3
Source: Authors tabulations from the 1970, 1980, and 1990 Public Use Samples of the U.S.
Census.
changed drastically: 13.1 percent of all

cash benefits were distributed to immigrant households, indicating a substantial
over-representation of immigrants in
welfare expenditures. Put differently,
the total amount of cash benefits received by immigrant households was 56
percent higher than would have been the
case if immigrants used the welfare system to the same extent as natives.
Immigrants, therefore, now receive a
disproportionately high share of cash
benefits. Moreover, they do not receive a
disproportionately high share of nonwelfare income. In 1990, immigrants received 8.3 percent of all non-welfare
income (about the same as their population proportion).36 Because immigrants
do not receive a disproportionately high
share of income, they also do not pay a
disproportionately high share of taxes.
As noted earlier, accounting exercises
that assign a dollar figure to the tax bur36 Even though the typical immigrant worker
earns less than the typical native, immigrants as a
group do not have a disproportionately low share
of non-welfare income. This discrepancy is explained by the fact that immigrants have larger labor force participation rates than natives.
den imposed by immigration inevitably

incorporate a number of hidden and
questionable assumptions. Table 16 illustrates the problem by presenting a backof-the-envelope calculation of the tax
burden in 1990. The first row reports
that immigrants received $3.7 billion
dollars in cash welfare benefits in 1990,
or as noted earlier, 13.1 percent of expenditures in cash benefit programs. At
that time, expenditures on all meanstested entitlement programs was $181.3
(U.S. Bureau of the Census, 1992, p.
357).37 If we assume that immigrants also
account for 13.1 percent of these expenditures, immigrants increase expenditures on all means-tested entitlement
programs by $23.8 billion.
The next step in the calculation is to
compute the taxes that immigrants pay.
According to the 1990 Census, immi37 The means-tested entitlement programs include such programs as Food Stamps, Medicaid,
low-income housing assistance, and Head Start.
Expenditures on means-tested entitlement programs totaled $186.4 billion. The figure reported
in the text nets out expenditures on Indian Health
Services and on pensions for needy veterans from
the total because few immigrants are likely to
qualify for these programs.
1706

TABLE 16
ACCOUNTING OF WELFARE EXPENDITURES AND TAXES PAID BY IMMIGRANT
HOUSEHOLDS IN 1990
(in billions of dollars)
Tax Rate
30%
1. Cash Benefits Received by Immigrant
Households (= 698, 071 Households x $5,363)
2. Dollar Value of Benefits from Means-Tested
Programs Received by Immigrant Households
(13.1% of $181.3 Billion)
3. Non-Welfare Income Received
by Immigrant Households
4. Taxes Paid by Immigrant Households
5. Taxes Allocated to Means-Tested Entitlement
Programs (8.9% of Taxes Paid)
6. Fiscal Burden on Native Taxpayers Imposed by
Immigrant Households
40%
$3.7
$3.7
$23.8
$23.8
$284.7
$85.4
$284.7
$113.9
$7.6
$10.1
$16.2
$13.7
Source: Authors tabulations from the 1990 Public Use Sample of the U.S. Census.
grant households received a total income

(net of welfare payments) of $284.7 billion. Richard Kasten, Frank Sammartino,
and Eric Toder (1993) have recently calculated the federal tax burden for U.S.
households at various points in the income distribution. Applying their estimated tax rates to the immigrant income
distribution suggests that the federal tax
burden for immigrants is on the order of
22 percent. If the total tax rate (including state and local taxes) is 30 percent,
immigrant households then pay about
$85.4 billion in taxes.
The calculations thus indicate that immigrants pay more in taxes ($85.4 billion) than they take out of the system
($23.8 billion). But this comparison is
misleading. It is, in effect, saying that
immigrant taxes are only used to fund
their use of means-tested entitlement
programs. This assumption is justifiable
if all other government programs provide
pure public goods, so that expenditures
in these programs are unaffected by immigration. It is likely, however, that immigrants increase the congestion associ-
ated with the provision of many of these

public goods (e.g., more crowded parks,
schools, and roads). In other words, the
marginal cost of providing these public
goods to the immigrant population is not
zero. Immigrants, therefore, should be
charged a user fee for the various government services.
It is obviously very difficult to determine the correct user fee schedule for
the services provided to immigrants. We
do not even know, for instance, if the
marginal cost of providing many of the
public services to immigrants (such as an
expansion of the public school system or
the construction of additional roads) is
less than or greater than the average
cost. Obviously, different assumptions
about the marginal cost of providing
services will lead to very different conclusions about whether immigrants pay
their way in the welfare state. For example, a revenue-neutral immigration
policy (i.e., one that would neither subsidize nor penalize natives for the provision of government services to the immigrant population) requires that the

average tax rate for immigrants be set
equal to:
ti =
Gi
,
Yi
(21)
where Gi gives the increase in government expenditures attributable to immigration, and Yi is the income received by
immigrants. This tax rate depends not
only on the increase in expenditures, but
also on the mean income and labor force
participation rate of immigrant workers
because less-skilled immigrant populations with low rates of work attachment
would have to be taxed at a higher rate
(for a given increase in government expenditures).
Suppose that the marginal cost of providing services to immigrants equals the
average cost and that per capita income
in the immigrant population equals that
of natives. These assumptions imply that
immigrants should be charged for the
costs of the various government programs as if they were natives. In other
words, if x percent of a native workers
taxes pay for defense, then x percent of
an immigrants taxes should also be allocated to pay for defense. In 1990, 91.1
percent of taxes were used to pay for
programs other than means-tested entitlement programs. If we charge immigrants 91.1 percent of their tax payments
for using these other programs, then
only 8.9 percent of immigrants taxes are
left to fund their use of means-tested entitlement programs. As reported in row 5
of Table 16, immigrants would then contribute only $7.6 billion to the funding of
the entitlement programs. The annual
loss associated with immigration is on
the order of $16 billion. 38 As this back38 To determine if there is a net benefit from
immigration, these fiscal costs must be contrasted
with an estimate of the benefits from immigration.
Consumers, for example, may be able to buy
cheaper goods and employers can hire some workers at lower wage rates. The literature, however,
1707
of-the-envelope calculation suggests,

therefore, accounting exercises can lead
to radically different conclusions about
whether immigrants pay their way.
The calculation reported in Table 16
illustrates why the studies of Passel and
Clark (1994) and Huddle (1993) reach
such different conclusions. Passel and
Clark estimate that immigrants pay
about $70 billion in taxes, but increase
expenditures in such programs as welfare
and education by $43 billion, thus generating a net surplus of $27 billion. This
calculation, of course, assumes that the
marginal cost of providing all other programs to immigrants is zero. In contrast,
Huddle simply concludes that immigrants pay less in total taxes than they
take out of the system. Huddles calculations, however, assume that immigrants
pay only 7 percent of their income in
taxes (net of payments to the Social Security system), and overestimate the
costs of immigration by claiming that for
every six immigrants who enter the country, one native is displaced from his job
and joins the welfare rolls.
The cost-benefit calculation presented
here focuses exclusively on immigrant
participation in means-tested entitlement programs. Adding other government programs, such as Social Security,
could change the results substantially.
For example, it is often argued that immigrants make a net contribution to the
Social Security system because many immigrants leave the United States prior to
retiring and do not collect benefits, despite their having contributed to the system. It is important to realize, however,
that the median age of immigration is 30,
so that many immigrants pay into the Social Security system for a much shorter
time span than natives, yet collect
roughly the same benefits (the benefits
does not provide a systematic accounting of these
benefits.
1708
of a person who works for 30 years are

not much greater than those of a person
who works for only 15 years). Despite
the potential importance of the Social
Security program for any cost-benefit
calculation, no studies exist which incorporate the long-run impact of immigration on the Social Security system.
The calculation also ignores the costs
and benefits of providing schooling to
immigrant children. The expenditures
associated with putting the children
through the public school system are
substantial. In California alone, it is estimated that roughly $1.7 billion was spent
on educating the children of illegal
aliens in 1993 (California Department of
Finance 1994). These costs, however,
must be contrasted with the benefits of
having a more educated work force later
on in the life cycle. It is also the case
that immigrants who enter the United
States after they complete their education import free human capital into the
United States. To the extent that immigrants do not receive their entire product as wages, substantial benefits might
accrue from this infusion of human capital. 39
8. The Second Generation
In 1990, 9.7 percent of the U.S. population was native-born with foreign parentage (or second-generation). By the
year 2050, the share of second-generation persons will increase to 13.9 percent, and an additional 8.5 percent will
be composed of the grandchildren of
current immigrants (Barry Edmonston
and Passel 1992, p. 471). The economic
39 Calculations conducted in particular localities, such as Los Angeles and San Diego, suggest
that the costs imposed by immigration on the
criminal justice system can also be substantial.
There is, however, little systematic study of the
extent to which immigrants participate in criminal
activities. John Tanton and Wayne Lutton (1993)
report that 20 percent of federal inmates in the
United States are non-citizens.
impact of immigration obviously depends

not only on how immigrants adapt to the
labor market, but also on the adjustment
process experienced by their offspring.
The traditional view of this intergenerational adjustment is vividly depicted
by the melting pot metaphor. Over the
course of two or three generations, immigrants are transformed from a collection of diverse national origin groups
into a homogeneous native population.
Beginning with Nathan Glazer and
Daniel Moynihan (1963), modern sociological research argues that this metaphor does not correctly portray the ethnic experience in the United States. In
fact, Glazer and Moynihan (1963, p.
xcvii) conclude that the American ethos
is nowhere better perceived than in the
disinclination of the third and fourth
generation of newcomers to blend into a
standard, uniform national type. The revisionist literature suggests that many of
the cultural and economic differences
among immigrant groups are transmitted
to their children, so that the heterogeneity found among todays immigrants becomes the heterogeneity found among
tomorrows ethnic groups.
The modern economic literature on
the intergenerational mobility experienced by immigrant households is dominated by two questions. First, is there a
significant improvement in economic
status between the first and second generations? Second, do the national origin
differentials in skills and earnings evident in the immigrant generation disappear over time?
In contrast to the voluminous literature analyzing the economic status of immigrants, few studies document the skills
and labor market performance of their
American-born children. Early work by
Chiswick (1977) and Carliner (1980)
used the 1970 Census cross-section to
calculate the relative wage of various
generations of Americans. The 1970
1709
TABLE 17
RELATIVE WAGES OF FIRST AND SECOND GENERATIONS IN 1940 AND 1970
(Percentage Wage Differential Relative to Third Generation)
Variable/Group
Log Wage
First Generation
Second Generation
Log Wage, Adjusting for Education and Age
First Generation
Second Generation
1940
1970
20.3
26.4
4.0
16.3
20.6
26.0
7.8
11.7
Source: Borjas (1993a, p. 119). The statistics are calculated in the subsample
of men aged 2564 who work in the civilian sector, who are not self-employed,
and who do not reside in group quarters.
Census data allow the precise identification of first- and second-generation

workers. 40 The generation of the remaining workers, who had both parents born
in the United States, cannot be determined, but for convenience we will call
them third-generation Americans. The
last column of Table 17 summarizes the
evidence provided by the 1970 Census
cross-section. Second-generation workers earn about 12 percent more than immigrants and 16 percent more than
third-generation workers. Both Chiswick
and Carliner concluded that there was a
great deal of economic mobility among
the ambitious children of immigrants,
but that the hunger disappeared by the
third generation.
This conclusion, however, is premature (Borjas 1993a). In any cross section,
the family ties among the three generations identifiable in the data are tenuous.
At the time of the survey, many members of the first generation have just arrived in the United States and cannot
40 The first-generation includes persons born
abroad, while the second generation includes persons who had at least one foreign-born parent.
Since 1970, the Census does not contain any information on the birthplace of the parents, but instead reports information on a persons ancestry,
regardless of parental birthplace.
have any native descendants employed in

the U.S. labor market. Second-generation workers can only be descendants of
immigrants who have been in the country for at least two or three decades.41
Therefore, if there are cohort differences among immigrants and if these differences are partially transmitted to their
children, the labor market performance
of second-generation workers now participating in the labor market (who are
the offspring of the immigrant waves
that arrived 30 or 40 years ago) cannot
be used to forecast the future performance of the children of newly arrived immigrants.
We showed earlier how tracking specific immigrant waves across Censuses
yields a rate of wage convergence in the
immigrant generation. The intercensal
tracking of immigrants and their offspring also yields an estimate of the rate
of economic mobility across generations.
41 It is also extremely unlikely that the so-called
third-generation workers are direct descendants of
the immigrants enumerated in the Census crosssection. The persons identified as members of the
third generation form a diverse collection of workers whose presence in the United States may date
40 or 400 years. Moreover, the cross-section comparison requires that working-age immigrants have
American-born grandchildren who are also of
working age.
1710

TABLE 18
NATIONAL ORIGIN WAGE DIFFERENTIALS AMONG FIRST GENERATION WORKERS IN 1940,
AND SECOND GENERATION WORKERS IN 1970
(Percentage Wage Differential Relative to Third Generation)
Country of Origin:
Austria
Canada
Cuba
Czechoslovakia
Denmark
France
Germany
Greece
Hungary
Ireland
Italy
Mexico
Netherlands
Norway
Poland
Portugal
Romania
Spain
Sweden
Switzerland
United Kingdom
USSR
Yugoslavia
First Generation in 1940
Second Generation in 1970
32.2
28.7
.4
31.9
33.8
25.7
21.9
9.8
28.0
23.2
17.2
39.1
11.1
31.0
24.9
5.2
34.3
6.7
30.0
21.9
37.3
31.8
34.9
23.5
12.1
2.5
14.7
12.6
24.6
13.7
20.8
22.6
21.7
14.7
14.9
17.5
15.5
16.6
.3
39.1
11.2
19.5
12.4
23.1
37.7
18.9
Source: Borjas (1993a, p. 124). The statistics are calculated in the subsample of men aged 2564
who work in the civilian sector, who are not self-employed, and who do not reside in group
quarters.
It is likely, for example, that the children

of the immigrant stock present in the
United States in 1940 show up as second-generation workers in the 1970
Census. The data reported in the first
column of Table 17 indicate that immigrants in 1940 earned about 20 percent
more than third-generation workers. As
we saw earlier, the children of these immigrants, presumably the second-generation workers enumerated in the 1970
Census, earn only about 16 percent more
than the third generation. The intercensal tracking thus contradicts the perception that second-generation workers
have, on average, higher earnings than
the first. There is, instead, a slight re-
gression towards the mean. Because the

immigrant stock present in the United
States in 1940 had very high wages, the
second-generation enumerated in 1970
had relatively lower wages than their immigrant parents.
Table 18 uses the 1940 and 1970 Censuses to document the huge wage differentials across national origin groups in
both the first and second generations. In
1970, second-generation Americans of
British ancestry earned about 23.1 percent more than third-generation Americans, while second-generation Mexicans
earned 14.9 percent less. To measure
both the shift in economic fortunes between the first and second generations as

well as the correlation in the mean earnings of an ethnic group across generations, it is useful to contrast second-generation Americans in 1970 with the
earnings of immigrants in 1940. Let w2j
be the average log wage (in 1970) of second-generation Americans in group j
relative to that of third generation
Americans; and w1j be the average log
wage (in 1940) of immigrants in group j
relative to that of third generation
Americans. Borjas (1993a, p. 125) reports that the regression line relating the
relative log wage of these two generations is given by:
w2j = .070 + .447 w1j,
(.017) (.065)
(22)
where the standard errors are reported

in parentheses and the regression uses
the 23 national origin groups listed in
Table 18. 42 The intercept reveals a 7 percent increase in earnings potential between the first and second generations
that is common to all national origin
groups. The empirical evidence, therefore, indicates that second-generation
workers do experience a jump in their
earnings capacity. The data, however,
also reveal a strong correlation between
the economic status of national origin
groups in the first and second generations. The slope estimate of .45 implies
that roughly half of the wage differential
between any two national origin groups
in the first generation persists into the
second. There is some regression toward
the mean, but national origin is still an
important determinant of the earnings of
second generation Americans. In fact, if
the intergenerational correlation is on
the order of .5 and is constant across
42 The regression reported in (22) is based on
the data summarized in Table 18. The regression,
however, uses a generalized least squares estimator to account for the heteroscedasticity introduced by the sampling error in the dependent
variable
1711
generations, the evidence suggests that

the ethnic skill differentials introduced
by immigration will persist into the third
generation and perhaps even into the
fourth.
The long-run persistence of ethnic differences is evident in a recent analysis of
the children and grandchildren of the
immigrants who entered the United
States at the turn of the 20th Century.
Using data drawn from the 1910 Census,
Borjas (1994) finds sizable differences in
the skills and earnings of the national
origin groups that made up the First
Great Migration. Using data drawn from
the 1940 and 1980 Censuses, and the
General Social Surveys, Borjas then
shows that there are sizable differences
in the skills and earnings of the children
and grandchildren of these immigrants.
A 20 percentage point difference in the
literacy rate between any two groups in
the first generation implies a 1-year difference in educational attainment among
second-generation workers, and a .5-year
difference among third generation workers. Similarly, a 20 percent wage differential between the two groups in the
first generation implies roughly a 12 percent differential in the second generation, and a 5 percent differential in the
third. Ethnicity matters, and it seems to
matter for a very long time.
This conclusion is not consistent with
the widespread perception that the correlation between parental skills and childrens skills is small and might be on the
order of .2 (Gary Becker and Nigel
Tomes 1986). Recent work by Gary
Solon (1992) and David Zimmerman
(1992), however, suggests that measurement error in parental background leads
to a substantial underestimate of the correlation in earnings across generations.
Correcting for this measurement error
increases the intergenerational correlation to between .3 to .4. Because the regression reported in (22) uses the aver-
1712
age earnings of workers in each group,

the relatively high intergenerational correlation between the first and second
generations is partly due to the fact that
the data net out a substantial amount of
measurement error.
Recent work, however, suggests that
measurement error alone does not explain the very high correlation in the
mean earnings of ethnic groups over
time. These studies argue that there are
racial or ethnic externalities in the labor
market which influence the human capital accumulation of persons belonging to
particular racial or ethnic groups (Glenn
Loury 1977). Put differently, the rate of
intergenerational mobility between immigrants and their children is influenced
not only by parental background, but
also by the quality of the ethnic environment where the children grow up.
These ethnic effects increase the correlation in earnings across generations and
can substantially delay the convergence
of ethnic skill differentials.
A simple formulation of this idea is
given by Borjas (1992a), who argues that
the average human capital stock in the
_
parental generation for ethnic group j, kj,
which he calls ethnic capital, acts as an
externality in the production of the human capital of children. The production
function for child quality is given by:
_
Child Quality = f (parental inputs, kj). (23)
The hypothesis that ethnicity has external effects on human capital accumulation has been used widely in the sociology literature. For instance, James
Coleman (1988) stresses that the culture
in which the individual is raised (which
he calls social capital) can be thought
of as a form of human capital common to
all members of that group. He argues
that social capital alters the opportunity
set of workers and has significant effects
on behavior, human capital formation,
and labor market outcomes. Similarly, in
his influential study of the underclass,

William Wilson (1987) argues that the
presence of mainstream role models in
poor neighborhoods serves an important
social and economic function. 43
To determine the relative importance
of parental inputs and ethnic spillovers
on the intergenerational transmission
process, Borjas (1992a) estimated the
following regression model in the National Longitudinal Surveys of Youth and
the General Social Surveys:
_
yij(t) = 1yij(t 1) + 2yj (t 1) + ij(t),
(24)
where yij(t) measures the skills (such as

education or wage) of person i in ethnic
group j in generation t; yij_(t 1) gives
the skills of his father; and yj(t 1) gives
the average skills of the ethnic group in
the fathers generation. All variables are
measured in deviations from the mean.
It is easy to show the link between the
micro model in (24) and the regression
using the mean earnings of ethnic groups
in the first and second generations reported in equation (22). Aggregating (24)
within an ethnic group yields:
_
_
_
yj(t) = (1 + 2) yj(t 1) + j (t).
(25)
The regression estimated in aggregate

Census data, therefore, estimates 1 +
2. This sum yields precisely the intergenerational transmission coefficient
relevant for determining the rate at
which the mean skills of ethnic groups
converge across generations, or meanconvergence. If the sum is less than
one, ethnic differences converge over
time; if not, ethnic differences diverge.
The empirical evidence indicates that 1
is on the order of .2 to .3, and that 2 is
also on the order of .2 to .3, so that the
rate of mean convergence is around .4 to
43 The rapidly growing literature on the determinants of endogenous economic growth also
stresses the hypothesis that human capital has external effects in production; see Robert Lucas
(1988) and Paul Romer (1986).

.6. There is, therefore, a great deal of
persistence in ethnic skill differentials
over time, and about half of the persistence is due to the effects of ethnic spillovers on intergenerational mobility.
We cannot yet determine if the ethnic
externalities model provides a useful approach for analyzing the long-run economic impact of immigration. Future research will have to specify the precise
mechanism through which ethnic and racial spillovers operate, such as neighborhoods, schools, and religious institutions,
as well as document the extent to which
intra-ethnic contacts influence job search
activities, occupational choice, and other
labor supply and labor demand decisions.
9. Conclusion
The literature investigating the economic impact of immigration on the
United States and on other host countries grew rapidly in the past decade.
This explosion of research substantially
sharpened our understanding of the economics of immigration. The stylized facts
that long dominated the discussion over
the costs and benefits of immigration
were radically altered during the 1980s,
and a number of new questions, issues,
and perceptions replaced them.
To appreciate the magnitude of this
upheaval, consider the perceived wisdom
as of ten years ago. The available studies
suggested that even though immigrants
generally arrived with an economic disadvantage, their economic opportunities
improved rapidly over time. Within a
decade or two after arrival, immigrant
earnings would approach, reach parity
with, and overtake the earnings of natives of comparable socioeconomic background. Moreover, there was little evidence to suggest that immigrants had an
adverse impact on native employment
opportunities. Overall, the empirical evi-
1713
dence painted a very optimistic picture

of the contribution of immigrants to the
American economy.
In the past ten years, many more
brushstrokes were applied to the canvas,
and the theme and shape of the picture
changed. The new research established a
number of new stylized facts: The relative skills of successive immigrant waves
declined over much of the postwar period; it is unlikely that recent immigrants
will reach parity with the earnings of natives during their working lives; although
there is only a weak negative correlation
between the presence of immigrants in a
local labor market and the earnings of
natives in that labor market, immigration
may have been partly responsible for the
decline in the earnings of unskilled native workers that occurred during the
1980s; the new immigration may have an
adverse fiscal impact because recent
waves participate in welfare programs
more intensively than earlier waves; immigration policy matters, so that host
countries which filter applicants in terms
of observable skills attract immigrants
who are more skilled, have higher earnings, and are less likely to participate in
public assistance programs; and, finally,
there exists a strong correlation between
the skills of immigrants and the skills of
second-generation Americans, so that
the huge skill differentials observed
among todays foreign-born groups become tomorrows differences among
American-born ethnic groups.
An important lesson of the recent research is that immigration has a farreaching and long-lasting impact. In a
sense, we are only beginning to observe
the economic consequences of the historic changes in the size, national origin
mix, and skill composition of immigrants
admitted to the United States during the
past three decades. The Second Great
Migration surely will alter the skill endowment of the labor force, the employ-
1714
ment opportunities of native workers,

and the costs of social insurance programs not only in our generation, but for
our children and grandchildren as well.
In addition, current immigration in the
United States and in many other host
countries is setting the stage for the ethnic differences in economic outcomes
that are likely to be a dominant feature
of labor markets in these countries
throughout the next century.
In view of the economic, cultural, and
political significance of the issues raised
by immigration, it is not surprising that
immigration policy is now a central ingredient in the debate over social policy
in many countries. For the most part,
this debate focuses on economic issues
and uses the evidence provided by economic research to frame and formulate
the discussion. Because the economic
impact of current immigration will be
felt for many decades to come and because the immigrant flow to many host
countries continues unabated, the explosion of research that we witnessed in the
past decade is sure to continue.
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Journal of Economic Literature

The Economics of Immigration

I am grateful to Julian Betts, Daniel Hamermesh, James Rauch,

ployment opportunities of natives? Finally, which immigration policy most

Journal of Economic Literature, Vol. XXXII (December 1994)

award entry visas mainly to applicants

quires an understanding of the factors

Borjas: The Economics of Immigration

Number of Immigrants (in 1000s)

Borjas: The Economics of Immigration

where wi is worker is wage rate; Xi is a

plicity, we restrict the discussion to the

Journal of Economic Literature, Vol. XXXII (December 1994)

Figure 1. The Cross-Section Age-Earnings Profiles

Figure 2. Cohort Effects and the Cross-Section

Borjas: The Economics of Immigration

instead may reflect innate differences in

Journal of Economic Literature, Vol. XXXII (December 1994)

Source: Authors tabulations from the 1970, 1980, and

Each Census cross-section shows that

to 27.6 percent by 1980, and to 31.7 percent by 1990.5

Borjas: The Economics of Immigration

where wij gives the wage of immigrant j;

earnings profiles of immigrants and natives converge if ( i + ) > n (assuming

In order to identify the period effects,

Equation (5) implies that the relative

Journal of Economic Literature, Vol. XXXII (December 1994)

If period effects influence the price of

would have fallen between 1980 and

Borjas: The Economics of Immigration

within age and education cells, LaLonde

Journal of Economic Literature, Vol. XXXII (December 1994)

Using Percentile Deflator

ally return to their countries of origin

later Censuses includes a larger number

Borjas: The Economics of Immigration

to natives aged 2534 in 1970, to natives

year period, therefore, the relative wage

Journal of Economic Literature, Vol. XXXII (December 1994)

same sluggish relative wage growth. This

sus that much of the decline is due to

Borjas: The Economics of Immigration

sons originating in Europe or Canada). 13

panic ancestry); Asian-American natives

Journal of Economic Literature, Vol. XXXII (December 1994)

44 in 1980, and with Mexican-American

Borjas: The Economics of Immigration

able changes in the national origin mix of

Journal of Economic Literature, Vol. XXXII (December 1994)

omys skill endowment. The costs and

example, documents that an additional

Borjas: The Economics of Immigration

A. National Origin and the

North and South America:

Borjas: The Economics of Immigration

$6,823 (in 1980 dollars). By contrast, the

where w0 gives the workers earnings in

where 1 is the mean log earnings in

Journal of Economic Literature, Vol. XXXII (December 1994)

able 1 measures deviations from mean

derive equation (11), note that:

Borjas: The Economics of Immigration

where = (z)/(1 (z)), and is the

Q0 < 0 and Q1 < 0